Decoding Shanghai office tenants’ CRE strategies

With current rental adjustments, Shanghai office tenants are exceptionally cautious when making their leasing decisions, and most are opting to renew their leases. However, after thoroughly considering factors including rents, commuting convenience, building specifications, and property management, a significant proportion of tenants are also choosing to relocate. To gain a comprehensive understanding of tenants’ movements, JLL Research conducted the Shanghai Office Tenant Survey and gathered nearly 100 responses.

Today, the financial aspect of leasing terms is among tenants’ top concerns, as rental decreases and flexible leasing terms rank as the two most important factors. It’s worth noticing that these two factors outweigh the importance of commuting convenience.

Figure 1: Shanghai office tenant survey: Ranking of factors affecting site selection

Source: JLL Research

Among all the respondents, over 70% stated that they would consider relocation if the total cost reduction exceeded 20%, and nearly 50% stated that they would only consider relocating if the total cost reduction exceeded 30%, highlighting a common focus on rents. In terms of industries, financial services companies are more flexible with rent, while retail, professional services, manufacturing and trading companies are particularly cost-sensitive. Survey results also suggest that among tenants with a CapEx amortisation period longer than five years, 80% prefer renewal, which is much higher than the average.

Apart from the rent costs, tenants also hope to enhance the leasing flexibility through leasing term adjustments. One-off CapEx, especially refurbishment-related expenditures, are tenants’ top concerns. Tenants anticipate fit-out reimbursements to reduce cost expenditure, which is also a common solution offered by landlords. The exemption or reduction of office reinstatement ranked second, underscoring its importance from the tenants’ perspective. Securing agreement on a renewal cap is crucial for mitigating long-term commercial real estate (CRE) spending risks. Given the current tendency for tenants to renew, pre-negotiating renewal rents is particularly beneficial, reducing risks in long-term development and enhancing tenants’ trust.

Figure 2: Shanghai office tenant survey: Ranking of factors affecting tenants’ leasing decisions aside from rents

Source: JLL Research

In addition to financial considerations, our survey highlights increasing requirements for superior building quality and property management. This aligns with JLL’s track record that shows 74% of relocation deals in the past three years reflected a desire for improved office space. Three primary reasons for firms moving include inefficient AC, few elevators, and inadequate restrooms. Naturally, different industries prioritise different office facilities. For example, TMT (Technology, Media, and Telecommunications) firms usually have high workforce density, creating a greater need for a larger number of restrooms. Life sciences companies, aligning with their ESG (Environmental, Social, and Governance) commitments, place greater emphasis on green building certifications.

Figure 3: Shanghai office tenant survey: Facility deficiency that most likely to urge tenants to relocate

*Respondents can choose up to six options.

Source: JLL Research

Given the current tenant-favourable market, landlords can enhance the competitiveness of their properties through high-standard property management and differentiated services. 91% of respondents value high-quality property management, and 84% of surveyed firms expressed a demand for corporate membership benefits from landlords. By offering discounts for parking spaces or exclusive offers at associated retail stores, landlords can foster a stronger sense of belonging and attract more customers to other sectors of the commercial property.

For more details, please download “Navigating the Tides: A dynamic view of Shanghai office market”.