The latest research reports from international property consultant Knight Frank  reveal the impact of Government regulations on real estate investments in the first quarter of 2013.

Luxury Residential

Affected by the “Five New National Measures”, home purchasers flooded into the new-home market, heating up the luxury residential market.  Many developers launched new phases in their projects before the original scheduled launch dates, pushing up luxury residential new supply 67% quarter-on-quarter in quarter one.  In March, the luxury home sales rebounded to 49,600 sq m.  This is a peak over the past six months which is a result of the uncertainties on local guidelines.  The transacted luxury price increased 2.5% from the previous quarter.  Luxury residential rents in Shanghai increased to RMB176.4 per sq m per month, with a quarter-on-quarter increase of 0.5%, while the vacancy rate rose slightly to 4.6% quarter-on-quarter.  With demand increasing, Regina Yang, Director and Head of Research & Consultancy at Knight Frank Shanghai expects the luxury residential market will see obvious rises in both sales volumes and prices in the second quarter.

Grade-A office

Cooling measures on the residential market imposed a positive impact to the office market. In the first quarter, new office supply in Shanghai’s urban districts soared 53.8% quarter-on-quarter to 366,000 sq m, and the total transacted volume reached 152,000 sq m. The average Grade-A rents were stable at RMB9.1 per sq m per day, equivalent to that in the previous quarter.  The new supply in Puxi in the second quarter is expected to further increase the Grade-A office vacancy rate in the area, which was 5.7% in the first quarter of 2013.  Meanwhile, new supply in Pudong is still limited in the short term.  The gap between Puxi and Pudong’s Grade-A office rents as well as vacancy rate is expected to continue to widen.

Retail

The Shanghai retail supply continued to improve in the first quarter of 2013, whilst both leasing demand and consumer demand slowed down.  Two shopping malls opened in Huangpu District and Changning District in first quarter, adding a total of 100,000 sq m of retail space to the market.  Ground-floor retail rents in core areas achieved RMB55.5 per sq m per day in the first quarter, a quarter-on-quarter increase of 1.5%.  However, the average occupancy rate of shopping malls dropped slightly to 91.3% in the first quarter, down 3.5 percentage points from the same period in the previous year.  After the central government issued regulations to control government’s expenses nationwide, business expense decreased.  Upscale catering business in Shanghai witnessed a 20% decrease in retail sales during the Spring Festival holiday and the retail sales of global luxury brands in China slowed down last year to Compound Annual Growth Rate of only 7% compare from around 30% in the past.  Leasing demand is expected to soften.  Both luxury retailers and fast-fashion retailers will slow down retail expansion, resulting in an increase of vacancy rate to 12% in 2013.