Chengdu's economy has witnessed consistent strong economic growth over the past few years, averaging a GDP growth rate of 15.5% per annum between 2000 and 2006. This is bolstered by sustained development of local commerce, financial and industrial sectors; strong local technological and R&D capabilities; and the buoyancy of the stock market in China. As a result of this economic success the Chengdu property market saw an upsurge of transaction activity, with yields strengthened across all sectors with rents growing during the first half of 2007. In particular, the office leasing and sales market demonstrated strong performance.

In the past three years, the supply of Grade A office space in Chengdu has increased dramatically, rising 45% from around 132,000 sq.m. in 2003 to 324,000 sq.m. at present. New supply of prime office space was boosted by about 40,000 sq.m. as at now, largely due to the opening of the Shangri-La Centre (see Appendix 1.). Grade A office space is predominantly taken up by multinational companies (MNCs); banks, financial institutions, law firms, as well as advertising, sales and marketing companies to meet their expansionary requirement.

Chengdu's average prime rental reached RMB 89.3 per sq.m. per month in the second quarter of 2007, up by 6.8% from the first quarter. The opening of the Shangri-La Centre raised Grade A office rentals this quarter to RMB 103.3 per sq.m. per month, representing a q-o-q increase of 8.6%.

Prime office premises presently offered for sale in Chengdu command average sales price of RMB 9,556 per sq.m. The average sales price of Grade A office properties was RMB 10,900 per sq.m. Both prime and Grade A office sales prices registered q-o-q increases of 3.1% and 3.6%, respectively.

"A substantial increase in office demand has been registered over the past few years, and we foresee this trend continuing in 2008. New entrants to the Chengdu office market, particularly the MNCs and financial institutions, have also been a significant force. With a new supply of properties such as Shangri-La Centre, we anticipate an increasing level of transaction activity in Chengdu," said Siang Huei Loh, Managing Director of CBRE Chengdu.

Looking ahead, CB Richard Ellis expects strong growth for office demand, particularly in the financial, professional, and business service sectors, as companies look to capitalise on the exponential growth within Chengdu. CB Richard Ellis expects that over 140,000 sq.m. of Grade A office space will be released into the market over the next 12 months. This major quantum of new supply in the pipeline will help to ease pent-up demand. While it is believed that quality office accommodation will remain highly sought after, that rental values of older office properties are likely to come under some pressure to soften amid the rising level of market competition.