Rents of Shanghai's Grade-A office buildings will increase steadily in the coming two years due to a limited new supply, an industrial market review report said.

The local office market will see 73,000 square meters of additional floor space next year and 70,000 square meters in 2005, according to a report by Jones Lang LaSalle yesterday. This year's supply is estimated at 70,000 square meters.

The daily rents of Grade-A office buildings hover around US$0.55 per square meter in the city.

Since 2000, the short supply has ensured rent increases. Consistent with the rise in demand, vacancy rates fell to about 9.7 percent by the end of the third quarter, an indication that quality office space is being swallowed up by the market.

Shanghai's office building market has sufficient growth potential, compared with other financial centers worldwide, said Remy Chan.

Chan is national director of the commercial department at Jones Lang LaSalle.

"Shanghai is touting itself as an international economic and financial center. So there is still much space for further development," said Chan.

To date, Shanghai has Grade-A office space totalling 3.3 million square meters, compared with 6.7 million square meters in Hong Kong and 42 million square meters in Tokyo.

Pudong's lujiazui area will outperform the rest of Shanghai in terms of prosperity, especially since it targets financial institutions, Chan said.

To date, there are 15 Grade-A office buildings in the Lujiazui area available for lease, providing a working area totaling 1.5 million square meters - nearly half of the city's total. The supply is forecast to grow by more than 50 percent to 2.4 million square meters by the end of 2006.

According to the Jones Lang LaSalle survey, about half of the tenants in Lujiazui's Grade-A office buildings are financial companies, including banks, insurance and securities companies. Those companies occupied an average office space of 2,600 square meters.

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