Shanghai's Thriving Rental Housing Market: Global Investor Interest and Robust Growth

The rental housing sector in Shangh has received global investor attention over the last few years for its strong underlying fundamentals, driven by favorable demographic shifts, supportive government policies, and high entry barriers for home ownership among migrant workers.

As of year- 2023, Shangh boasts approximately 187,000 units across nearly 500 rental housing projects, representing a 57 increase from the total stock at year- in 2022. Despite most new supply being located in the city's periphery areas, these developments are well-received due to their proximity to metro stations, diverse room offerings, and comprehensive amenities such as gyms, shared spaces, and convenience stores that align with modern tenants' living needs.

Figure 1: Shangh's rental housing stock at year- 2023

Upon the recovery of Shangh's economy and social activities following the pandemic in 2023, the rental market experienced a robust rebound in leasing activity compared to the previous year. New rental units have been absorbed quickly despite increasing supply levels. The overall occupancy rate for operational projects at least six months remned consistently high at around 89 - 90. This uptick was driven by strong demand from white-collar workers, freelancers, and students.

With higher-quality rental housing entering the market in 2023, there has been a notable surge of interest from families with children and mid-to-senior-level professionals transitioning from property ownership to long-term rentals, especially those affiliated with state-owned enterprises. These segments are expected to drive a new wave of demand for long-term leases in rental housing.

As a result, the net absorption of new units reached 51,000 across Shangh by year- 2023 - a significant increase from the previous year's figure of 21,000. The market dynamics have been bolstered by an expanded base of tenants seeking stability and convenience in rental housing options.

In terms of future supply projections, it is estimated that another 164,000 units will be added to Shangh's rental housing stock from R4 land primarily for rentals and R2 land designated for exclusive rental use between 2024-2025. This forecast anticipates a significant portion of the new supply will be distributed across Pudong District, Minhang District, and Qingpu District - accounting for nearly 58 of total rental housing stock by year- 2025.

Approximately 64.7 of these future units are anticipated to be located outside the city's Outer Ring Road, with another 19.6 situated between the Middle and Inner Rings, and 14.2 within a radius between the Outer and Middle Rings. There will be very limited new supply in the Inner Ring Road, contributing only 1.5 of the total projected stock.

Figure 2: Forecasted future rental housing supply by district

With the sector's robust fundamentals and ability to deliver consistent operating performances throughout economic cycles, Shangh's rental housing market is proving attractive for both domestic and foreign institutional investors seeking opportunities with high potential returns in 2024. As of year- 2023, there were a total of 14 completed en-bloc transactions across the city, totaling RMB 7.2 billion - marking an increase of 18 from the previous year's figure.

Figure 3: Shangh rental housing en-bloc transaction volume RMB million by year

Looking ahead to the coming years, it is anticipated that Shangh's rental market will mntn a high level of investment interest as investors capitalize on its healthy fundamentals and continued growth potential.
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