Shanghai Lujiazui becoming most vigorous CBD area
By Tian Xiuzhen (China Business Weekly)
Updated: 2004-12-16 14:56

Shanghai's Lujiazui Finance and Trade Zone is fast becoming the most vibrant central business district (CBD) area in China, witnessing a strong surge in the commercial property demand estimated to reach a peak in 2007 and 2008, said a spokesperson at Jones Lang LaSalle, a leading global real estate services firm.

The firm concluded last week that two factors driving demand are off-shore international companies entering China and the growth of the financial sector in Pudong, according to Michael Hart, the head of research at Jones Lang LaSalle.

The company's recent Corporate Real Estate Impact Survey showed that multinational corporations do not consider cost reduction to be the most important objective in real estate strategies.

As a recent example, a world's leading Fortune 500 auto manufacturer leased 11,000 square metres in Shanghai's Information Tower this year, expanding office space first established in Shanghai in 2000.

In 2004, the company secured over 20,000 square metres of space in Lujiazui for a number of associated corporations.

This space includes 5,000 square metres for another global auto manufacturer in Aurora Plaza, and 2,230 square metress for Bell & Samsung in Shanghai Information Tower.

"The improved infrastructure and established business environment in Lujiazui have inevitably attracted many company headquarters, on the heels of banks and insurance companies. Lujiazui is set to compete in the international arena," said Remy Chan, commercial head of Jones Lang LaSalle Shanghai.

Lujiazui has seen rapid development since its inception in 1993, heralded by the area's first important office building, the Majesty Building, put into use in October 1995.

A temporary over-supply of space, exacerbated by the Asian financial turmoil, resulted in a soft leasing market in 1997. However, Lujiazui has since seen substantial growth in office space demand.

By 2002, 121 financial organizations had entered the zone, including 56 foreign financial organizations and 43 foreign banks. Current figures remain unavailable, but analysts estimate the new figures to be much higher.

The market has continued to strengthen incrementally with the achievement of a more balanced market by 2003, while the rent level adjustment in 2003 was followed by another increase in 2004.

An aggressive level of expansion in China by foreign financial institutions, a result of the opening up of the financial sector, subsequent to the end of the Chinese Government's 10th Five Year Plan, will create another wave for space -- viewed by many experts as a strong counter-force to prices.

"Compared to the physical size of the financial market in Hong Kong, Shanghai still offers enormous development potential, justifying an increased level of attention and financial investment," said Hart.

Shanghai's present use of space by international financial corporations is around 160,000 square metres, while that in Hong Kong's financial district is 1,000,000 square metres.

"We are sure that this discrepancy will be substantially reduced in the coming years as there will be a soaring demand for offices as multinationals continue to swarm into the area," said Chan.

Despite forecast construction, including both the 337,000-square-metre World Finance Centre, to be finished in 2007, and the new 220,000-square-metre Sun Hung Kai Project, to be completed by 2008, rents in Lujiazui will still remain strong, Chan added, due to the huge demand.

There are still some drawbacks that should not be overlooked.

Chan pointed out that the river transportation infrastructure, and relative isolation of the buildings in Lujiazui, are both bottlenecks to be broken.

"Other particular concerns are commercial facilities as well as overall environment," he added.

Chan suggested that the creation of a more integrated infrastructure may help to address the above concerns, which the government of Pudong New Area shall take into careful consideration.

He borrowed most of the ideas from experience in Hong Kong and suggested:

First, greater internal communications between buildings, as well as connections between different neighbourhoods, as the area continues its rapid expansion;

Second, overpasses and pedestrian tunnels to connect the various isolated clusters surrounding the Central Greenland and Century Avenue; and

Third, with the increase in traffic and occupancy volume, the area will also have increased business value, which will encourage the development of additional commercial amenities, in turn attracting more occupancy.

For those who are still looking for a spacious office in Shanghai, the agency recommends Lujiazui, as the current rental price is still relatively low compared to that of Puxi business district.

Close