Mainland China's commercial markets continue to perform well while the United States considers a currency war with China.

According to Jones Lang LaSalle's 3Q Mainland China property report, average Grade A office rents increased 2.5 percent year over year as growth demand from both MNC and local tenants remained robust. properties for sale

"Newly finished buildings have been promptly occupied by demand from both foreign and domestic enterprises in recent quarters. Due to limited future supply, notably in Puxi, landlords will be able to maintain significant bargaining power in the near future "Jones Lang LaSalle Shanghai's Managing Director, Anthony Couse, stated.

As city-wide retail sales continued to rise and a number of new shops joined Shanghai, the retail leasing market remained strong.

This quarter saw a number of transactions in the en-bloc investment sector, including office and retail buildings. Rents grew 1.6 percent year over year in the non-bonded logistics market, owing to strong demand in the supply-constrained West Shanghai submarket.

Office Markets of Multinational Corporations

In 3Q11, rents in Shanghai continued to climb as demand for expansion and upgrades from both MNC and domestic tenants remained robust. Average Grade A rents increased by 2.5 percent q-o-q and 14.3% y-t-d to RMB 8.6 per sqm per day. With limited available supply and strong demand from MNC tenants, the Puxi market outperformed Pudong somewhat, widening the rental disparity between the two sides of the river. Puxi rents increased by 3.4 percent year on year to RMB 8.9 per sqm per day, while Pudong rents increased by 1.1 percent to RMB 8.3.

The market for Grade A space in Puxi was driven by growth demand from MNC tenants, with new buildings and upcoming developments seeing strong leasing and pre-lease enquiries. For example, AkzoNobel leased 15,500 square meters in Eco City, increasing its office space by 40%. Omnicom has also set aside 7,500 square meters for the project. The commitment rate for ICC Phase I, a Premium Grade A building finished in 2Q11, was 57 percent, with roughly 40 percent of the remaining space in serious negotiation. The financial sector drove net take-up in Pudong, with MNC banks being the most active in Premium space. Two foreign investment banks took up 10,400 square meters and 3,900 square meters, respectively, at Two ifc, demonstrating that their expansion plans in China were not impeded by global economic concerns.

In 3Q11, the CBD received four new Grade A buildings, three of which were in Pudong. The Taiping Finance Tower in Lujiazui has a total GFA of almost 90,000 sqm and has had substantial leasing activity, with 76 percent of its space now leased. Lujiazui Investment Tower (34,020 sqm) and Lujiazui Fund Tower (32,060 sqm) are two new Grade A buildings in Zhuyuan. Yes Commercial Building, located next to the Zhongshan Park Metro station in Puxi, has been completed, adding 65,100 square meters to the Grade A market. Despite the new completions, the vacancy rate in both Pudong and Puxi only increased marginally to 9.5 percent and 7.0 percent, respectively, due to robust pre-leasing activity in new buildings. This quarter, five buildings with a combined GFA of 312,270 sqm were completed in the decentralized office market. As new completions were handed over with high pre-commitment rates and existing buildings enjoyed significant net take-up over the quarter, net absorption in the decentralized market reached a record high of 195,725 sqm.

Retail Markets of Multinational Corporations

The biggest drivers of lease demand this quarter in Shanghai were mid-range fashion and F&B businesses, including numerous newcomers to the market. Melissa, a Brazilian shoe company, has opened stores in Xintiandi Style and Grand Gateway, respectively. Plaza 353 and Hongyi Plaza on Nanjing East Road continues to attract more affluent tenants. Plaza 353 is bringing in Hollister to replace a lease-expiring tenant, while Hongyi Plaza has leased 1,000 square meters to Gap. A months-long upgrading and reshuffling process in Raffles City is nearly complete, and Japanese fashion shops Cross and Beberose have both secured 100 sqm locations in the building, allowing them to enter the Shanghai market. In the third quarter of 2011, food and beverage retailers were also active. Grandma's Kitchen, a prominent Hangzhou restaurant business, swiftly moved into Shanghai, leasing locations in Channel One, CRC Times Square, Hongkou Cloud Nine, and New Road. The premier retail market's average ground floor rents remained essentially steady at RMB 50.2 per square meter per day, up 0.5 percent year on year. Ground floor rents in decentralised areas grew 1.7 percent year on year to RMB 25.1 per square meter per day.

On September 6, Henderson Metropolitan conducted a soft opening, adding 35,000 square meters to the core market. With anchor tenants such as an Apple store, Sasa, and Azul by Moussy, the project's commitment rate has reached 85 percent. The project also contains a lot of food and beverage tenants, which fills a void in the market along East Nanjing Road. Minhang Cloud Nine, Kerry Parkside, and Tianshan Parkson department stores in the decentralised market were completed with nearly 100% occupancy, contributing 165,000 sqm to the decentralised stock. Minhang Cloud Nine satisfies pent-up demand for mid-range retail in Shanghai's densely populated southwest sector, and it has already attracted a significant volume of foot traffic – far above typical for a newly completed mall.

Investment by a multinational corporation

According to preliminary data, the overall sales value of en-bloc transactions in 3Q11 was RMB 7.8 billion, slightly higher than in 2Q11. The entire transaction volume in Shanghai for the first three quarters of this year was RMB 28.5 billion, up more than RMB 5 billion from the same period last year. A number of big deals were done in the third quarter of 2011 in both the office and retail sectors. In September, Hong Kong New World Development inked a sale and purchase agreement with Blackstone to buy the decentralized Channel One shopping complex for RMB 1.46 billion, marking the first time in Shanghai that a virtually fully occupied traditional shopping mall has been sold. Domestic investors seeking space for both investment and personal use were the most active in the office market. SOHO China maintained its acquisition spree in Shanghai when it paid RMB 1.89 billion for Jiarui International Plaza, a Grade A property in Zhuyuan, or about RMB 44,000 per square meter. The project will be dubbed SOHO Century Avenue and will be completed in the second quarter of 2012. Huabao Investment, a Bao Steel affiliate, purchased three floors (57F-59F) of SWFC for about RMB 83,000 per sqm. In Puxi, a domestic bidder paid roughly RMB 60,000 per square meter for an office building in the Shanghai Port International Cruise Terminal. Despite concerns about the global economy's direction and difficulties acquiring financing due to the government's strict monetary policy, rates remained unchanged on the prospect of ongoing rental growth due to high demand and reducing vacancies.

Industrial Markets of Multinational Corporations

In the non-bonded market, two new projects totaling 133,908 sqm were completed in the third quarter of 2011. Vailog Songjiang Logistics Park Phase III, located in West Shanghai, contributed 37,890 square meters to the market. The entire project was pre-leased earlier this year by Elee Logistics and Vancl, showing the significant demand for space in the supply-constrained West Shanghai submarket. GLP Park PVG in Pudong was finished this quarter, adding 96,018 sqm to the market. Pudong is the only location in Shanghai with substantial amounts of unoccupied space due to lower demand for non-bonded space. Due to the project's completion, the non-bonded vacancy rate increased to 9.4 percent from 7.2 percent in 2Q11. Average non-bonded rents in West Shanghai increased by 1.6 percent q-o-q to RMB 1.12 per sqm per day, owing to strong demand and a tight market. Rent growth fell from the previous quarter due to a huge number of available space and poor demand in Pudong, which kept rents from rising.

In the bonded market, a logistics firm leased 6,000 square meters at the Phoenix Bonded Logistics Centre in Waigaoqiao, lowering the bonded vacancy rate to 22.0 percent. In the bonded market, no new projects were completed this quarter, and rentals remained unchanged at RMB 1.06 per sqm per day.

Business Parks of Multinational Corporations

Companies are rapidly seeking high-quality data centers to provide important support services for their enterprises, owing to the recent rise of the financial and IT sectors in Shanghai and the surrounding region. It is critical for Shanghai to have sufficient data center capacity in order to encourage enterprises, particularly financial firms, to migrate and expand in the city. Because China's telecommunications business is so tightly regulated, there is a scarcity of high-quality data centers maintained by competent operators. Existing data centers have been dispersed throughout the city in different business parks rather than being concentrated in one region due to the vast amount of power and resources they consume as well as the tiny number of employment and tax revenues they produce. Many foreign operators prefer to lease space rather than create their own data centers because they must form a joint venture with a domestic company that has a license. Because the supply of high-quality data centers is limited, operators that are able to get access to the market can earn significant profit margins, making the industry increasingly appealing to many operators.