An additional 3 million square meters of Grade A office space will open in Shanghai over the coming few years, among which more than one-third will be premium standard, a leading property company forecast yesterday.

By the end of 2011, about 1.29 million square meters of premium Grade A offices will enter the city's CBD areas, said Jones Land LaSalle in its latest research paper.

This will transform the local office market into a two-tiered sector characterized by differences in quality and rent, the research found after studying the market over the past 18 months.

Compared to common Grade A offices, premium Grade A properties usually have more generous ceiling heights, advanced climate-control systems, very convenient locations with proximity to Metro stations, major roads and core CBDs, high portfolio property managers as well as sustainable features.

"Market forces are continuing to drive a divergence between the top performers and the rest. We've found the gap between the top group of highest-rent buildings in Shanghai and the rest of the Grade A buildings has grown from between 1.20 and 1.60 yuan (23 US cents) in 2004 to 3.50 yuan today," noted Anthony Couse, managing director of Jones Lang LaSalle Shanghai.

A gap over 4.50 yuan is plausible within two years as premium Grade A space enters the market en masse this year, the company predicted.

Rents in the premium Grade A category have been increasing 17 percent annually over the past three years, while owners of Grade A buildings settled for an annual 13-percent gain during the same period.

In terms of vacancy levels, over recent years each new premium Grade A office building has reached nearly full occupancy when three-quarters completed. Vacancy rates were half a percentage point lower than those of their Grade A counterparts.

(Shanghai Daily June 27, 2008)