Wall Street Still Hungry for China’s Choicest Office Addresses

(Bloomberg) --

When JPMorgan Chase & Co. was casting around for new office space in Shanghai in late 2018, executives weren't interested in just any building. It had to be one they could stamp their name on.

That was Shanghai Tower, China's tallest skyscraper, from where the bank's logo shines across the city's historic Bund area. At the end of last year, it boosted its occupancy to 20,000 square meters (215,300 square feet).

The move was symbolic of Wall Street's ambition to capitalize on the opening of China's $45 trillion financial industry.

Enlarging workspace is one step in tapping the long-awaited opportunity to control local ventures or establish wholly owned entities in the world's second-largest economy. A commitment to stay the course is offering much-needed respite for commercial property developers in financial capital Shanghai as the coronavirus threatens a sector that was already oversupplied.

“Foreign financial tenants are undeterred by the outbreak. We haven't really seen anyone winding back expansion plans like some other multinational companies,” said Fion Zhang, CBRE Group Inc.'s head of office services in eastern China. “They're seizing the favorable policies in China, and their appetite for space is growing.”

JPMorgan agreed earlier this month to buy out its local partner in a mutual fund joint venture. The bank is also seeking full ownership of its futures venture in China, Bloomberg reported in December, and has taken majority control of a local securities unit.

Nomura Holdings Inc., Japan's biggest brokerage, has nearly doubled the size of its office space to around 5,000 square meters. The firm expects local headcount to more than double by 2023 as it builds up its wealth-management business and expands into investment banking.

Bank of America Corp., one of the largest full-service U.S. investment banks, expanded office space by 20% when moving into the prestigious International Finance Center in the fourth quarter, a person familiar with the matter said, declining to be named because the details are private.

Such moves are a boon in a city where office vacancy rates are expected to climb to 30% this year with rents sliding 6%, according to Colliers International Group Inc. Nationwide, the portion of empty offices last year soared to levels last seen during the global financial crisis amid a supply glut and slowing economy.

It's hoped that with China's financial markets opening further, more empty space will be absorbed. CBRE expects foreign firms' increased control of local ventures to be one of the biggest drivers of office demand in Shanghai this year.

China eased foreign ownership limits on April 1, allowing firms to run their own money management units and investment banks. Morgan Stanley, Goldman Sachs Group Inc. and Credit Suisse Group AG have all won approval to take control of their securities joint ventures in the past two months.

Super Tenants

Firms including JPMorgan and Mitsubishi UFJ Financial Group Inc. are already “super tenants” in Shanghai, meaning they have at least 10,000 square meters of office space, about the size of a Manhattan city block.

Some international firms have been so keen to secure their desired location they've had their parent company sign the lease rather than wait until a locally incorporated venture is formally set up, agents say.

The presence of Wall Street heavyweights, along with giant asset managers such as BlackRock Inc. and Vanguard Group Inc., will also lure smaller funds and family offices, said Dave Chiou, head of China research at Colliers. Switzerland's EFG Bank AG, for instance, leased 120 square meters of space in Shanghai's World Financial Center in the fourth quarter, according to people familiar with the matter.

“Before, most foreign institutions acted more like passive financial investors in their Chinese joint ventures and hadn't much sway in office decisions,” said Cary Zheng, a senior director at Savills Plc. “As they boost stakes to leading roles, they're bringing office-upgrading proposals to the table.”

©2020 Bloomberg L.P.

With assistance from Bloomberg