Shanghai’s high-end rental housing market on the rise
Strong market demand and entry willingness from investors will help Shanghai’s high-end rental market to grow.
In late 2021, Warburg Pincus-backed Golden Union Assets acquired the Cohost West Bund – a high-end rental housing project in Shanghai from fund manager Schroder Pamfleet and Hong Kong-listed Deson Development International. The deal was marked as the first high-end rental housing project exiting China successfully. As one of the high-end rental housing projects in Shanghai, the Cohost West Bund offers 66 apartments with a large common area combined with mixed retail, catering, a modern gym, swimming pool and a tennis court. It implies that institutional investors remain interested in investing in high-end rental housing projects.
In Shanghai, mass-market rental housing products – mainly catering to the needs of fresh graduates and young professionals - usually offer 30-sqm units with very basic fit-out and furniture, with pricing from RMB 2,000 to 7,000 per room per month. While traditional serviced apartments - mainly targeting executives from MNCs - usually offer spacious room layouts, high-quality fit-out and services at much higher rents (see Figure 1). Although mass products dominate rental housing, we see an increasing trend of more high-end projects entering the market, capturing upgraded leasing demand from senior professionals, families, small business owners and self-employed individuals. High-end rental housing fills the gap between traditional serviced apartments and mass rental housing by offering good interior design and fit-out and light service with affordable rents.
Figure 1: Monthly rent range of different rental housing projects in Shanghai, 2021
Note: Outliers are excluded in the monthly rent range
The high-end rental housing market is gradually taking shape, with total stock accounting for 8% of the overall market, up from 2% in 2018. We identified several high-end brands leading the Shanghai high-end rental market. For example, Funlive, established by China SCE Group and Golden Union’s BASE Living, mainly operating core projects located in the central area, play key roles in today’s high-end rental housing market. Additionally, L Home, owned by Lujiazui Group, and Shanghai Land Group’s City Wonder stood out as the only two SOE players in the high-end market by the end of 2021. As many R4 land plots are under construction now, we expect more high-end rental housing projects to be developed by SOEs in the coming years.
Looking forward, we expect the upgrading demand from new citizens and the young generation, as better living quality is on the rise. Growing demand will attract more investors and operators to enter the market, especially as the government is promoting the development of the rental housing sector by unveiling supportive policies such as tax deduction, operating subsidy and financial convenience. Moreover, the government has disclosed that professionals are actively discussing the possibility of including all rental housing projects in REITs, an additional exit option for investors. As such, it’s foreseeable that more institutional investors and SOEs will participate, offering sufficient supply to fulfil the growing leasing demand. Ultimately, we believe that all these positive incentives on the policy side, inflowing capital injection and improved project quality will propel the overall high-end rental housing market to grow.