Shanghai glut rises with newest tower

Posted: 12:00 pm Wed, December 25, 2013 By BloombergNews Finance and Commerce Tags: CBRE Group Inc., China, RET Property Consultancy Ltd., Shanghai Tower 12:00 pm Wed, December 25, 2013

A Chinese national flag flies in front of buildings in the Lujiazui district of Shanghai, China. The Shanghai Tower project in the district will add 2.4 million square feet of office space, or more than 10 percent of the new supply forecast for the city in 2015, according to RET Property Consultancy Ltd. (Bloomberg News file photo)

When completed in 2015, the Shanghai Tower will be Chinas tallest building. The 2,074-foot skyscraper will also deepen a glut of offices in the city, putting pressure on rents.

The project, in the Lujiazui financial district, will add 2.4 million square feet of office space, or more than 10 percent of the new supply forecast for the city in 2015, according to RET Property Consultancy Ltd. About 21.5 million square feet of grade-A offices will be added between 2014 and 2015, more than double the supply in the previous two years, according to broker Savills Plc.

The Chinese governments resolve to turn Shanghai into a global economic, financial and shipping hub by 2020 has led to an office building boom to accommodate companies such as Citigroup Inc. and Nike Inc. that set up a presence in the city. Rents in Shanghai outside of central locations may fall as much as 17 percent in the next three years as space is added and the worlds second-largest economy strives to maintain growth that has averaged 10.5 percent in the 10 years to the end of 2012, according to broker CBRE Group Inc.

Such a big supply will pressure office rents in prime locations, said Alex Chen, Shanghai-based senior associate director at RET Property. The numbers are showing that vacancy rates and rents are definitely heading in a negative direction citywide.

Office rents in Shanghai fell 0.3 percent to 8.41 yuan per square meter per day in the third quarter, the first quarterly drop since 2010, according to Savills.

Tallest towers

Once finished, Shanghai Tower will rank as the worlds tallest building after the 2,716-foot Burj Khalifa in Dubai, data compiled by Chicago-based Council on Tall Buildings and Urban Habitat show. It will surpass Chinas current record holder, the 1,614-foot Shanghai World Financial Center, which is diagonally across Dongtai Road and houses the local offices of Google Inc. and Ernst & Young LLP.

Lujiazui, on the east side of the Huangpu River in Pudong and across from the Bund historical waterfront area, has evolved from rice paddies three decades ago into Shanghais main financial district. The 1,381-foot Jin Mao Tower, now the citys second-tallest, sits across from Shanghai Tower and Shanghai World Financial Center.

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Shanghai glut rises with newest tower