(Yicai) Oct. 11 -- Amid an overall sluggish demand for office space in Shanghai, third-party office leasing jumped last quarter to rank fifth among various types of commercial property leasing in the city.

The market share of third-party office leases in Shanghai was around 9 percent in the three months ended Sept. 30, according to new data from US commercial real estate services and investment giant CBRE Group.  

The third-party office leasing model involves operators leasing office space in bulk from property owners and then subleasing it to end-users on a retail basis.

This leasing demand is mainly concentrated in non-professional markets or relatively remote areas in Shanghai, said Zhu Xidong, senior director of Jones Lang LaSalle's local commercial real estate department. Via the third-party leasing model, "secondary landlords" help property owners significantly reduce inventory by renting at relatively low prices, Zhu added.

The non-professional housing rental market refers to the practice where landlords do business directly with tenants without going through professional agents or leasing institutions.

There are two main reasons for the increase in demand for third-party office leases, according to Wei Chaoying, president of project and corporate services at Cushman & Wakefield China. First, office clients prefer move-in-ready spaces, which the co-working model offered by third-party leasing perfectly meets, and second, co-working spaces serve as a supplementary offering that can enrich the variety of building products and quickly reduce vacant rental areas, Wei said.

In this context, privately-owned co-working brands such as International Workplace Group maintain a vigorous business expansion, Wei pointed out.

However, the increase in demand for third-party leasing has not altered the overall sluggish demand in the Shanghai office building market, with net absorption shrinking 40 percent to 71,000 square meters last quarter from the prior one and 39 percent from a year earlier, according to CBRE data. The office vacancy rate climbed 0.4 percentage point to 21.5 percent from the second quarter, while overall rental rates fell 1.7 percent to CNY259.20 (USD36.60) per sqm a month.

The market environment should be more conducive for tenants to upgrade and adjust their office space, Zhu said. However, low rental rates alone are insufficient to push firms to relocate, as this can involve tens of millions of Chinese yuan, equivalent to millions of US dollars, Zhu noted, adding that landlords must offer more service packages, such as cash incentives, to attract companies.

With more new supply entering the market, projects and areas with high vacancy rates may face further downward pressure on rents in the short term, according to industry insiders.

However, the market is showing positive signs, according to Zhang Yue, head of office advisory and transaction services at CBRE China. The recent spate of government economic growth support policies will likely drive the economy back onto a new, healthy growth trajectory, effectively supporting the recovery of long-term market demand for office buildings, Zhang said, noting that leasing demand is expected to improve next year.

Editors: Tang Shihua, Martin Kadiev