2 In the frst quarter (Q1), the gross industrialoutput value of large-scale industrialenterprises in Shanghai increased toRMB836.087 billion, up 6.0% year on year(Y-o-Y). Gross industrial output value rose toRMB287.534 billion in March, up 0.9% Y-o-Y. The gross industrial output value of the sixkey industries increased to RMB567.52 billion,up 5.9% Y-o-Y. Of the six key industries, theauto manufacturing, electronic informationproduct manufacturing, complete equipmentmanufacturing and biopharmaceuticalmanufacturing increased by 11.6%,5.0%, 7.2% and 16.1%, respectively,whilst petrochemicals and fne chemicalmanufacturing decreased by 1.9% and 7.0%,respectively. In Q1, the output value of strategic emergingindustries in Shanghai reached RMB243.164billion, an increase of 8.2% Y-o-Y, with growthrate increasing by 1.7 percentage points Y-o-Y. On 9 February 2018, in order to encourageresidents to purchase and use new energyvehicles, the seven government departmentsof Shanghai jointly released a notice of“Implementation Methods for Encouraging thePurchase and Use of New Energy Vehicles”.In Q1, the output value of new energy vehiclesincreased signifcantly by 51.0%, with growthrate 8.4 percentage points higher than that ofthe previous quarter. In Q1, the number of 984 foreign directinvestment (FDI) contracts signed for Shanghaitotalled 984, an increase of 156% Y-o-Y. The total contractual FDI value increased by7.3% Y-o-Y to US$10.543 billion; Utilised FDIreached US$3.715 billion, a slight decrease of2.1% Y-o-Y.On 28 March, in order to further revitaliseindustrial lands and increase output value,the Baoshan district government investedapproximately RMB29.8 billion in 37 signifcantindustrial projects in Baoshan District, witha total site area of 2,950 mu (1 mu=666.67sqm). These projects are mainly concentratedin municipal level industrial zones, includingBaoshan Industrial Park, Baoshan CityIndustrial Park, Shanghai Industrial Park ofRobotics, and Yueyang Industrial Park.High-quality logistics warehouses in Shanghaicontinued to be sought-after, attractinginvestors and owner-occupiers. Recently, theGoodman Group sold a logistics propertyportfolio in China to China Everbright Limited.The portfolio includes seven Chinese logisticsassets in six cities, including Kunshan, Jiaxing,Xi’an, Qingdao, Wuxi and Shenyang, with acombined leasable area of over 320,000 sqm.This has become one of the largest high-qualitylogistics property portfolio transacted in China. In “The 13th Five-Year Plan Regarding theTransformation and Upgrading of ShanghaiIndustrial Parks” released at the end of 2017,the scale of planned industrial lands will becontrolled within 550 sq km by 2020. In themedium-to-long term, industrial land supplywill decline steadily based on urbanisation.By 2040, the total site area of the plannedindustrial lands shall account for 10-15% oftotal planned construction lands.Given continuous upgrading of industrialproperties, industrial lands available fordevelopment will be limited; in conjunctionwith that, demand for industrial lands fromboth occupiers and investors remained strong,triggering a continued increase in land pricesin the foreseeable future. In the logisticswarehouse market, rents for high-quality assetsare expected to increase by approximately1-2% in the next quarter as a result of limitedsupply and stable demand. Factoring in strongdemand, industrial factories will be in shortsupply and we estimate that factory rent willcontinue to increase by 3% to 4% Q-o-Q. LEASING ACTIVIES OFLOGISTICS WAREHOUSINGREMAINED ACTIVE IN Q1 2018In March 2018, China’s manufacturing Purchasing ManagersIndex (PMI) reached 51.5%, an increase of 1.2 percentagepoints month on month (M-o-M). The manufacturing sectorhas demonstrated steady growth. 3 RESEARCHSHANGHAI INDUSTRIAL MARKET REPORT Q1 2018 -6% -4% -2% 0% 2% 4% 6% 8% 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 Q1 /08 Q2 /08 Q3 /08 Q4 /08 Q1 /09 Q2 /09 Q3 /09 Q4 /09 Q1 /10 Q2 /10 Q3 /10 Q4 /10 Q1 /11 Q2 /11 Q3 /11 Q4 /11 Q1 /12 Q2 /12 Q3 /12 Q4 /12 Q1 /13 Q2 /13 Q3 /13 Q4 /13 Q1 /14 Q2 /14 Q3 /14 Q4 /14 Q1 /15 Q2 /15 Q3 /15 Q4 /15 Q1 /16 Q2 /16 Q3 /16 Q4 /16 Q1 /17 Q2 /17 Q3 /17 Q4 /17 Q1 /18 %RMB/sqm/dayLogistics rent (left)Q-o-Q growth rate (right) In March 2018, China’s Logistics IndustrySentiment Index, published by the ChinaLogistics and Purchasing Federation,was recorded at 53.4%, an increase of3.4 percentage points M-o-M; China’sWarehouse Storage Index was up 5.1percentage points M-o-M to 53.5%; andChina’s Highway Freight Index was 98, aM-o-M decrease of 1.5%.In terms of sectors, the activities of logistics- related industries are becoming morevigorous, of which railway transportation,warehousing and postal services havepicked up signifcantly. Due to the relatively higher rents of logisticsproperties and the shortened land usageterms for industrial projects granted inShanghai, a large amount of demand forlogistics and warehouse properties hasshifted away from Shanghai to other 2ndand 3rd tier cities in surrounding areas,including Suzhou, Taicang, Kunshan, Jiaxingand Nantong. In Q1, Shanghai logisticswarehouse rent remained unchanged atRMB1.51 per sqm per day.In Q1, a total of 100,000 sqm of warehouseLOGISTICS PROPERTY Source: Knight Frank Research FIGURE 1 Average rent and Q-o-Q growth rate of logistics warehouse properties space was added to the Shanghai high- quality logistics warehouse market. The newlogistics warehouse space is situated inFengxian Lingang and is under developmentby Shanghai Gangtai Group. The leasing market of the logisticswarehouse sector remained active in thefrst quarter. Health BioMedical has leasedapproximately 6,500 sqm of warehousespace in Vanke Shanghai Qingpu LogisticsPark; Shanghai McCormick Foods hasleased about 12,000 sqm of warehousespace in Vanke Shanghai Jiading LogisticsPark; and China Post has rented the entireE-Shanghai Pudong Airport project with atotal GFA of 100,000 sqm. 4 In Q1 2018, new factory supply was limited.A total of 50,000 sqm of new factoryspace was completed in Lindo U Valley inBaoshan Business Park. Factory properties are still in short supply,and the main reasons are as follows: on thesupply side, the Government Report issuedin 2018 emphasised speeding up thedevelopment of advanced manufacturingand strategic emerging industries.Therefore, industries such as electronicinformation, equipment manufacturing,biomedicine and medical instrumentshave priority in obtaining industriallands, leading to increasing diffculties infnding industrial locations for mid-to-lowmanufacturing companies. On the demandside, urban demolition of illegal buildingsin Shanghai has had a great impact on thesupply of factories in the past two years.Demand for factories is robust due to theincreasing number of enterprises requiringnew locations after the government’scompulsory demolition policies.In Q1, factory rent in Shanghai continuedto increase steadily. The average rent ofsingle-foor factories reached RMB1.2 persqm per day with a Q-o-Q increase of 3.4%and growth rate was0.2 percentage pointlower than the previous quarter.FACTORIES -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 Q1/ 08 Q2/ 08 Q3/ 08 Q4/ 08 Q1/ 09 Q2/ 09 Q3/ 09 Q4/ 09 Q1/ 10 Q2/ 10 Q3/ 10 Q4/ 10 Q1/ 11 Q2/ 11 Q3/ 11 Q4/ 11 Q1/ 12 Q2/ 12 Q3/ 12 Q4/ 12 Q1/ 13 Q2/ 13 Q3/ 13 Q4/ 13 Q1/ 14 Q2/ 14 Q3/ 14 Q4/ 14 Q1/ 15 Q2/ 15 Q3/ 15 Q4/ 15 Q1/ 16 Q2/ 16 Q3/ 16 Q4/ 16 Q1/ 17 Q2/ 17 Q3/ 17 Q4/ 17 Q1/ 18 RMB/sqm/dayFactory Rent (left)Q-o-Q growth rate (right) Source: Knight Frank Research FIGURE 2 Average rent and Q-o-Q growth rate of single-foor factories The demand for factories in PudongJinqiao and Kangqiao was very strongwith rents of single-foor factories reachingRMB1.8-2.0 per sqm per day. A US-basedmanufacturing company renewed theleasing contract for its 4,000-sqm factoryspace at a renewal rent of RMB2.3 per sqmper day. In Fengxian Lingang, a French autoparts project rented approximately 3,500sqm of sin