Shanghai's hi-tech park rents fall as the economic slowdown bites but landlords keep the faith eyeing tenants' strong business prospects
Rental rates at Shanghai's hi-tech parks have slipped this year as start-ups battled cost pressures in a slowing economy, but as the city steps up efforts to bolster sectors like semiconductors, artificial intelligence (AI) and biotech, owners of such businesses will generate stable returns for both investors and vendors.
According to property services firm JLL, rents at the city's major hi-tech parks stood at 4.5 yuan (62 US cents) per square metre per day in the third quarter of 2023, down 2 per cent from last year's 4.6 yuan. A JLL survey of 60 institutional investors in those parks showed that 90 per cent of them had lowered their forecasts for rental income because China's economic recovery, after its reopening from the Covid-19 pandemic, failed to live up to expectations.
"Companies are now giving rental rates a priority when they choose office space," said Stephen Yu, head of business park services for JLL's office leasing advisory division in Shanghai. "They are trying not to waste a single coin in renting offices."
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But investment interest in hi-tech parks is growing. Sun Ling, head of capital markets for JLL East China said investors, ranging from local governments' investment arms and state-owned insurers, to private equity funds are keen on investing in these hi-tech parks.
Shibei Hi-tech Park by Shanghai Shibei Gaoxin Group. Photo: Baidu alt=Shibei Hi-tech Park by Shanghai Shibei Gaoxin Group. Photo: Baidu>
"These investors are aware of the growth potential of the hi-tech industries that are strongly supported by the Chinese government," said Sun. "They also believe that these technology companies are promising and will continue to draw growth capital in the future."
The JLL survey showed that investors in the parks are now earning an annual investment return of 5 to 5.5 per cent, and 89 per cent of them are considering increasing investments over the next three years.
The findings are in line with data published by JLL earlier this month that showed the overall vacancy rate at grade-A office in the city hit 21.6 per cent in September, an increase of 1.2 percentage points from June. Rents dropped 1.4 per cent to 7.20 yuan per square metre per day.
Shanghai, mainland China's commercial and financial hub, is home to about 200 industrial parks, where builders and operators chase a cluster effect of interconnected businesses working together. This helps start-ups tap technology resources available close by to quicken their research and development.
The city has ambitions of transforming itself into a technology innovation centre, pledging to support companies involved in basic sciences.
Daniel Yao, head of research for JLL China, said the key technology industries, including electric vehicle (EV) and AI, saw their growth largely outperform the city's GDP buoyed by the local government's incentives and support.
At present, companies in the fields of semiconductors, AI, life science, EVs and video game development, occupy a total of 70 per cent of the space in the parks across the city.
But there are challenges to be surmounted. The city's gross domestic product (GDP) stayed nearly flat in the third quarter ending September, adding a mere 0.2 per cent from a year ago.
The local statistics bureau does not provide stand-alone third-quarter GDP numbers, but the data is derived by comparing Shanghai's economic output of 3.32 trillion yuan from January to September and the 2.14 trillion yuan figure recorded in the first-half.
Still, the local economy expanded 6 per cent in the first three quarters from a year earlier, well above the full-year growth target of 5.5 per cent.
According to a new report by research firm Preqin, China-focused venture capital (VC) funds raised US$2.7 billion from April to June this year, down 54.2 per cent from the previous quarter. The decline was a major contributor to an overall fall in VC fundraising in Asia-Pacific, where numbers reached a five-year low, Preqin said in July.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.
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