Oct. 16 (Bloomberg) -- Office rents in Shanghai’s designated free-trade zone have doubled in three months as building owners take advantage of companies rushing to register an address in the region, according to CBRE Group Inc.
A surge in demand for a presence in the 29-square-kilometer (11-square-mile) area has pushed up asking rents to 4.2 yuan ($0.69) per square meter (10.76 square feet) per day, double the level in July, Los Angeles-based broker CBRE said in a report released yesterday.
Shanghai, the nation’s commercial hub, last month inaugurated the zone as a testing ground for free-market policies that Premier Li Keqiang has signaled may later be implemented more broadly in the world’s second-largest economy. HSBC Holdings Plc, Citigroup Inc. and Bank of China Ltd. are among financial institutions that have won approval to set up a sub-branch in the region. HSBC’s outlet will start by early next year, Europe’s largest lender said Oct. 12.
“There’s definitely lot of speculation,” Sam Xie, a research director at CBRE, said at a press conference in Shanghai yesterday. “As long as it’s office space, no matter how small, it rents out quickly for companies to register there. It will take some time for people to realize the plan is actually a long-term process.”
The State Council on Sept. 27 announced plans to allow trials of yuan convertibility in capital flows and permit foreign companies to invest in more of the nation’s service industries in the zone. The free-trade zone covers four customs areas where goods stored are exempted from tariffs and value added taxes: Waigaoqiao bonded zone and logistics park, Pudong airport zone, and Yangshan port zone, according to the government.
There is 400,000 square meters of office space similar to Grade B in the zone, of which 56 percent is more than 10 years old, CBRE said. Selling prices for offices in the area have risen about 20 percent since September with the highest asking price hitting 35,000 yuan per square meter, similar to the cost of buildings sold this year in the city’s center, CBRE said.
Office rents in the free-trade zone are still lagging behind the Shanghai average, which rose 0.3 percent in the third quarter from the previous quarter to 251 yuan per square meter per month, according to the report.
A majority of companies registered in the zone are small-to-medium-sized private Chinese companies that may not move into the zone in the near term, according to CBRE.
“The effect we see in the free trade zone is not going to twist the overall office market in Shanghai,” said Xie. “For a long time, we will see a lot of companies registered in the zone but operate outside.”
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