Plans are afoot to double the size of Pudong New Area's core financial area in order to meet robust demand for grade-A office space from banks and the booming service sector.

In an interview with China Daily, Liu Jizeng, deputy director of the district's Development and Planning Bureau, expressed his concern that there will soon be a shortage of office space in Xiao Lujiazui, which lies on the eastern bank of the Huangpu River facing the world-famous Bund.

Liu said that full details of the plan are expected to be revealed by the end of this year.

Xiao Lujiazui, the city's financial hub, covers an area of 1.7 square kilometres north of Dongchang Road and west of Pudong South Road.

The area, which boasts the landmark Oriental Pearl Television Tower, is home to the Jinmao Tower, as well as the offices of Citibank, the HSBC Building and many other multinational companies.

In addition, it is the core of the Lujiazui Finance and Trade Area.

It is understood that the district government will expand the financial area to reach Dongfang Road in the east and Zhangyang Road in the south, almost doubling its current size.

Liu added that the relocation of local residents would be an inevitable result of this expansion.

Shanghai is home to 383 financial institutions, of which 20 are newcomers, having moved in less than six months ago.

"We expect these newcomers to require at least one square kilometre of office space," Liu said.

The city's strategy of shifting its focus from manufacturing to services is also having an impact on the distribution of businesses.

More and more services companies, including financial institutions, are rushing to the bustling city centre, pushing up the cost of grade-A office space.

Daily rent in the area is around 88 US cents per square metre, while it is 91 US cents per square metre in Puxi on the western side of the Huangpu River.

Rents are highest in Jing'an District, at US$1.06 per square meter a day.

"Available office space in Xiao Lujiazui's grade-A offices is at a historic low," according to Michael Hart, head of research global real estate services provider Jones Lang LaSalle Greater China.

Space is in short supply across the city and no buildings have been completed in Xiao Lujiazui over the past six months, he said.

Hart attributes this shortage of space in Xiao Lujiazui to the lack of space to develop in other parts of the city.

"What Xiao Lujiazui has are a number of sites ready for development since they have been cleared and no residents need to be relocated," Hart said.

In addition, Xiao Lujiazui offers a concentrated area of grade-A offices.

According to Hart, Xiao Lujiazui has about 33 percent of the city's grade-A offices. This ratio is set to rise to 45 percent by 2010.

"This means while other areas are still important, Xiao Lujiazui will be the undisputed centre of commerce in the city," he said.

A report from international property consultants and estate agents Savills shows that by the end of 2008, 12 more grade-A office buildings will be completed in the Lujiazui Finance and Trade Area, offering more than 927,000 square meters of office space.

(China Daily August 29, 2006)