Micheal Cole writes:
Commercial real estate economics is not all that complicated – especially for office space. Landlords buy or develop a building, rent it out, and if rents are more than costs, then they are making money. So rents going up means the potential for profit is growing, and if rents are coming down then times are getting tougher.
And Shanghai rents appear to be heading south.
According to brokers advising on transaction in the Shanghai market, during the last few months rents at some of the city’s prime office developments have already begun to decrease. Landlords have also begun to incentivize brokers by offering higher commissions and other deal sweeteners to stimulate cashflow.
In particular, Plaza 66, a landmark building on Shanghai’s Nanjing West Road has already begun to lower its effective rental rates, and the nearby Wheelock Square building, another prime office property and the tallest structure in the Puxi section of Shanghai is also said to be lowering its rental rates.
When rents are on the way down, and asset prices are still on the way up, then the market would appear to be headed for a correction in the not too distant future.
