Com­pa­nies keen to pay for prime CBD lo­ca­tions

De­mand for grade-A of­fice space in ma­jor cities holds its own in a gen­er­ally weak prop­erty mar­ket, re­ports Yao Jing.

China Daily (Canada) - - BUSINESS -

Of­fice space in core ar­eas of China’s big cities is get­ting more ex­pen­sive. But in­stead of walk­ing away, com­pa­nies are pay­ing up, top­ping ex­pec­ta­tions in China’s com­mer­cial prop­erty sec­tor in an over­all weak real es­tate mar­ket. The de­mand for grade-A of­fice space in ma­jor cities has re­mained steady, driven by a lack of new sup­ply, low va­cancy rates, do­mes­tic com­pa­nies’ in­ter­est in new leases and in­creas­ing con­fi­dence on the part of land­lords, ac­cord­ing to prop­erty ser­vices con­sul­tants and providers.

A glance at a sky­scraper in Bei­jing’s cen­tral busi­ness district in Chaoyang district gives ev­i­dence of the trend.

Chi­naWorld Trade Cen­ter Tower III, at 81 sto­ries and one of the tallest build­ings in Bei­jing, is also the most ex­pen­sive of­fice build­ing in theCBD. It cur­rently is home to about 70 com­pa­nies.

East of the build­ing, the China World Trade Cen­ter Phase 3B project is un­der con­struc­tion.

In the sec­ond quar­ter of the year, Bei­jing’s prime of­fice mar­ket reg­is­tered 39,800 square me­ters of net ab­sorp­tion. CBD rents rose 2.9 per­cent quar­ter-on-quar­ter, the first in­crease recorded in six quar­ters, ac­cord­ing to a re­port re­leased­byJonesLang LaSalle IP Inc, a real es­tate man­age­ment com­pany.

Strong leas­ing ve­loc­ity in the nearby For­tune Fi­nan­cial Cen­ter, cou­pled with lim­ited avail­abil­ity in the CBD, led key build­ings, such asChi­naWorldTrade Cen­ter, to re­gain con­fi­dence and raise rents.

The bank­ing and in­sur­ance in­dus­tries were the main driv­ers of de­mand, and sev­eral new leases were signed in the sec­tor.

Do­mes­tic com­pa­nies again ac­counted for the ma­jor­ity of new leases, while for­eign firms gen­er­ally re­newed or leased com­par­a­tively smaller spa­ces.

“Land­lords and ten­ants are be­com­ing more dis­cern­ing as the mar­ket ma­tures, and there is an in­creas­ing un­der­stand­ing that not all build­ings are cre­ated equal,” said Eric Hirsch, head of mar­kets for JLL Bei­jing.

By com­par­i­son, most other sub­mar­kets were flat or reg­is­tered min­i­mal in­creases.

For Zhang Ying, man­ag­ing direc­tor at JLL North China, the ris­ing rents and grow­ing con­struc­tion ar­eas in the CBD were a sign of some­thing more: signs of the com­pany’s ex­pan­sion in China.

Work­ing for JLL for 18 years, Zhang has wit­nessed the com­pany’s growth from a sin­gle of­fice with three peo­ple to one hav­ing more than 2,000 staff mem­bers.

Mean­while, start­ing from a 360square-me­ter of­fice in Ful­llink Plaza in Chaoyang district, the com­pany’s Bei­jing branch rep­re­sented the first com­pany to move into the China WorldTradeCen­terTow­erIIIin2010.

It now oc­cu­pies a spa­cious of­fice on the 11th floor of the land­mark build­ing, with a unit size of nearly 3,500 sq m.

Dur­ing con­struc­tion, the com­pany stayed in the­World Trade Cen­ter Tower I from 2003 to 2010.

“The size of our busi­ness is 24 times than that of 10 years ago, and the num­ber of em­ploy­ees is 13 times,” Zhang said.

An­ex­pert in­com­mer­cial­prop­erty, JLLwas­s­e­lec­tive­aboutwhento sign it­s­te­nan­cy­con­tract.“Ithink­our­rent is atth­elow­er­leve­la­m­ong­tenantsof the build­ing as we came here when the net take-up of the city’s of­fice mar­ket was low,” said Zhang.

Zhang said Bei­jing’s of­fice mar­ket hit bot­tom at the end of 2009, but rents climbed in 2011.

Sur­rounded by nu­mer­ous bank­ing and in­sur­ance com­pa­nies, law firms as well as multi­na­tional com­pa­nies, JLLhopestoat­tract­more­tal­ent, win­clients’ tru­standim­proveits ex­per­tise in the com­mer­cial prop­er­ty­mar­ket.

“Em­ploy­ees and our cus­tomers will be happy to see our sta­ble growth­with­i­non­earea,” saidZhang.

Still, the CBD is not the most ex­pen­sive area in Bei­jing. With do­mes­tic fi­nan­cial com­pa­nies con­tin­u­ing to ex­pand to Fi­nan­cial Street, prime of­fice rental growth is con­tin­u­ing there.

But wors­en­ing traf­fic con­di­tions and a lack of new­sup­ply in the CBD is push­ing some com­pa­nies to look into emerg­ing in­dus­trial parks.

“An in­creas­ing num­ber of com­pa­nies such as Siemens AG, Al­stom SA andMi­crosoft Corp, are es­tab­lish­ing their head­quar­ters in the cap­i­tal’s Wangjing area,” said Liu Bing, head of in­vest­ment and ad­vi­sory ser­vices at North China DTZ, a real es­tate con­sult­ing firm.

Of­fice space in in­dus­trial parks is much cheaper than in the CBD. Bei­jing CBD rent tal­lied 336.9 yuan ($55) per squareme­ter in the sec­ond quar­ter, while the Bei­jing grade-A of­fi­cer­ent­was300.8yuan­per­square me­ter per month, ac­cord­ing to DTZ.

InShang­hai, grade-Aof­fice va­cancy rate in the Pudong New Area fell to a record low in the past six years, to ap­prox­i­mately 1.2 per­cent, said a re­port by Col­liers In­ter­na­tional, a com­mer­cial real es­tate com­pany.

Bytheendof June, av­er­age rent in the Pudong grade-A of­fice mar­ket rose by 3.8 per­cent year-on-year to ap­prox­i­mately 9.1 yuan per square me­ter per day, pri­mar­ily sup­ported by the in­crease in­Pudong .

The CBD grade-A of­fice mar­ket re­ceived four new com­ple­tions with a com­bined of­fice gross floor area of 202,452 sqm, three of them lo­cated in­Puxi.

“De­mand from cor­po­ra­tions re­lo­cat­ing from down­town ar­eas as well as those up­grad­ing from lower grade build­ings was stim­u­lated by the new com­ple­tions, with net ab­sorp­tion in­creas­ing by 42.7 per­cent year-on-year in the first half of 2014,” said the re­port.

James Shep­herd, ex­ec­u­tive direc­tor and head of re­search for greater China at Cush­man & Wake­field, a pri­vately held com­mer­cial real es­tate ser­vices firm, said the peak of of­fice devel­op­ment in Shang­hai’s CBD will hap­pen be­tween2015and2017 in such large de­vel­op­ments as Shang­hai Tower, Bund Fi­nan­cial Cen­ter, Xu­ji­ahui Cen­ter and Pudong Fi­nan­cial Plaza.

“It will likely be a win­ner-take-all mar­ket, with good projects hav­ing high pre-com­mit­ment rates, while poor projects strug­gle to lease at all. De­mand­forShang­haiTower is likely to be strong­est from do­mes­tic com­pa­nies,” said Shep­herd. Qiu Quan­lin con­trib­uted to this story. Con­tact the writer at yaojing@chi­

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