_Shanghai’s Emerging Market: The North Bund Area
In recent years, several emerging business districts in Shanghai with development potential were identified by the municipal government. Covering a total area of 64,088 sq m, the North Bund Area, which is located in the south part of Hongkou District, by the Huangpu River, is one of the most representative.
Over the years, the area has developed into a cluster of shipping and financial services businesses from what was originally an area with a limited number of shipping-related businesses.
After nearly 20 years of development, a number of high quality office buildings, including the Sinar Mas Centre and Landmark Centre, were built in the North Bund area. Total office stock in the area reached approximately 1.7 million sq m this year, 67% of which is Grade-A office space.
The office market in the area is expected to reach another construction peak in the next three years. By 2020, total new office supply will reach 634,000 sq m, raising the area’s office stock to more than 2.3 million sq m. By 2020, developments such as the SIIC Project, Star Bund Centre Phase II of Star Harbour, and Sino-American T&F Tower will be launched.
Above: Shanghai's Huangpu River
At present, the major tenants in the North Bund Area are shipping companies, and large and mid-sized domestic financial companies. In early 2017, there were up to 4,500 shipping companies operating in the area, for a compound annual growth rate (CAGR) of 7.1% between 2012 and 2017.
Since the government proposed establishing a financial industry cluster in the North Bund, a number of private equity firms have moved into the area. In the first half of 2017, the number of financial companies reached 1,216, which amounts to a CAGR of 44% between 2012 and 2017.
As a number of large state-owned enterprises (SOEs) and financial institutions have moved in, North Bund office rents in the area have risen significantly in recent years, with the average office rent reaching US$1.11 per sq m per day in 2017, up 97% from 10 years ago. The gap in Grade A office rents between the North Bund area and the city-wide Grade-A offices also narrowed, from US$0.72 in 2008 to US$0.37 in 2017.
As one of the emerging business districts, the North Bund Area has tried to differentiate its positioning from other nearby office clusters. Lujiazui in Pudong and the core CBDs in Puxi remain the top choices for financial and professional services companies. However, shipping companies still prefer the North Bund Area over Lujiazui, West Nanjing Road or Huaihai Middle Road in the city centre. Therefore, the North Bund Area will continue to attract more companies in the shipping and related industries, such as transportation, trade, insurance, finance and leasing.
As a result, the municipal and district governments are likely to provide tax incentives to attract substantial investment from shipping and related industries. This will enable companies in these industries to benefit from the clustering effect.
Meanwhile, developers are expected to propagate long-term leasing strategies and improve building management standards to enhance the quality of the properties. Prospective tenants and investors should be aware of the positioning and development potential of the North Bund Area before making business decisions.
This post is part of series of articles taken from Knight's Frank Global Cities 2018 report, which examines the challenges and opportunities facing the global property investor and the key real estate drivers affecting and influencing global cities, the way we build, and the way we live.
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