Shanghai’s rental housing sector in the spotlight

Shanghai’s rental housing sector has drawn wider attention from global investors in 2023 for its strong fundamentals.

February 19, 2024

Over the past few years, Shanghai's rental housing sector has grown exponentially. This growth is fuelled by favourable demographic shifts, government policy support, as well as high barriers to home ownership faced by migrant workers in the city.

According to JLL's data, Shanghai has nearly 500 rental housing projects with an approximate total of 187 thousand units as of the end of 2023, representing a 57% increase over the total stock in 2022. Even though most of the new supply is concentrated in the outlying areas of the city, these new projects are well-received by the market. This is due to their convenient access to metro stations, diversified room offerings, and well-rounded amenities, including gyms, common areas, and mini-marts, which align greatly with tenants' ever-evolving living needs today.

Figure 1: Shanghai’s rental housing stock, 4Q23

Source: JLL Research

As Shanghai's economy and social life returned to normalcy after the pandemic, its rental housing sector has also seen a significant rebound in leasing activity compared to 2022. New rental housing units have been absorbed quickly despite the strong uptick in the supply. The overall occupancy levels (for projects that have been operating for at least six months) hovered at around 89% to 90% over 2023. The strong take-up was contributed by strong unmet demand from white-collar workers, freelancers and students.

As higher-quality projects reached the market this year, we also noticed a considerable increase in interest from families with children and mid-to-senior-level professionals from state-owned enterprises. These latter group is transitioning from build-to-sell and will likely drive long-term leasing demands in rental housing. Therefore, Shanghai's rental housing sector registered a record net absorption of 51,000 units by the end of 2023, a significant increase from 2022’s net absorption of 21,000 units.

In terms of future supply, we anticipate that Shanghai will deliver another 164,000 rental housing units between 2024 and 2025, which will come from R4 land (land newly zoned for rental use) and R2 land (residential-use land set aside for exclusive rental use) combined. We forecast that Pudong District, Minhang District, and Qingpu District will constitute 58% of the city's total rental housing stock by the end of 2025. Most of the future rental housing units (64.7%) will be concentrated outside Shanghai's Outer Ring Road. An additional 19.6% of new units will be situated between the Middle and Inner Ring Roads, and 14.2% will be located between the Outer and Middle Ring Roads. Meanwhile, future supply within the Inner Ring Road is extremely limited, accounting for only 1.5% of the total supply.

Figure 2: Shanghai’s future rental housing supply, district breakdown

Source: JLL Research, forecast as of January 2024

Given the sector's robust fundamentals, Shanghai's rental housing sector remained attractive to domestic and foreign institutional investors seeking to expand their value-add or opportunistic strategies for higher returns in 2023. This year, Shanghai saw 14 en-bloc transactions completed, with total transaction volume reaching a record of RMB 7.2 billion, up 18% year-on-year. Looking ahead, Shanghai's rental housing investment market will likely remain heated over 2024 as more investors invest in rental housing for its healthy fundamentals and ability to deliver robust operating performances throughout economic cycles.

Figure 3: Completed rental housing en-bloc transactions in Shanghai between 2021 and 2023

Source: JLL Research