Influx of new businesses, residents sets off property boom

Shanghai's economy was formerly driven by finance, shipping and trade, but the city is becoming more service-oriented.

Demand for high-end storage facilities and factories will rise as trade and manufacturing in the city becomes more sophisticated, said analysts.

Most of the office space in the Shanghai FTZ area is low-end. Demand for medium-level office space within the zone will grow, and the most popular office type will be similar to business parks, said Regina Yang, head of research and consultancy at Knight Frank in Shanghai.

The average cost of office space in Lingang was only 8,858 yuan per sq m over the past year, while the city's average Grade-A office is 55,439 yuan per sq m, according to DTZ East China research

Restaurants and supermarkets are likely to spring up in the FTZ, but analysts said they didn't expect to see shopping malls any time soon, due to insufficient foot traffic.

The retail sector will grow after the office segment develops, and as the FTZ is fully built up, the residential sector will also get a boost, said Yang.

It's nearly certain that the FTZ will offer tax exemptions, which means high-end imported food and luxury goods will be duty-free within the trade zone.

"Goods will be sold at cheaper rates compared with those in Chinese mainland markets", said Brodie.

Xie cautioned that the FTZ may not be a boon for luxury items in general. Taxes aren't the only reason that luxury goods cost much more in the Chinese mainland than cities such as Hong Kong or New York.

"Luxury brands use a different pricing strategy here in China," said Xie.