Big rental churn looms on of­fice realty in Bei­jing

China Daily (Hong Kong) - - BUSINESS - By REN XIAOJIN renx­i­ao­jin@chi­

There is no let up in the rental up­trend in top-grade of­fice spa­ces in Bei­jing’s key ar­eas and some in fact be­came costlier in the se­cond quar­ter of this year, which could force prospec­tive as well as ex­ist­ing ten­ants to look for cheaper al­ter­na­tives in other ar­eas, in­dus­try an­a­lysts said.

Ac­cord­ing to Jones Lang Lasalle, a real es­tate ser­vices firm, pop­u­lar lo­ca­tions in Bei­jing for Grade A of­fice spa­ces in­clude Cen­tral Busi­ness District or CBD, Olympic Park, Wangjing and East Chang An Av­enue.

They have seen four new Grade A projects that added 2.7 mil­lion square me­ters to the cap­i­tal’s of­fice space sup­ply in the se­cond quar­ter, tak­ing the to­tal to 102 mil­lion sq m.

Ping An Trust Co Ltd, a sub­sidiary of Ping An In­sur­ance Group, has bought a shop­ping mall in north­east of Bei­jing for 1.25 bil­lion yuan ($184 mil­lion) in April.

Ac­cord­ing to JLL, Ping An Trust may con­vert the mall into an of­fice com­plex, po­ten­tially adding 1 mil­lion sq m more of gross floor area to the mar­ket.

Ad­di­tional sup­ply in Bei­jing’s sub­ur­ban ar­eas such as Olympic Park has in­creased the choices avail­able, which could en­cour­age some ten­ants in prime lo­cal­i­ties to re­lo­cate.

In such a sce­nario, high rents in CBD may drop, some­times sig­nif­i­cantly, JLL said in a re­search note.

Eric Hirsch, head of mar­kets of JLL in Bei­jing, said high rents and emerg­ing al­ter­na­tives will likely stoke a re­think among prop­erty own­ers, po­ten­tially re­sult­ing in cheaper of­fices in prime lo­ca­tions.

“Some 78 per­cent of newly added of­fices have been rented out al­ready in the se­cond quar­ter,” said Zhang Ying, gen­eral man­ager of JLL, North China re­gion. “Af­ter the new projects are fin­ished, Bei­jing will see more Grade A of­fices in sub­ur­ban mar­kets. The prop­erty own­ers there may of­fer dis­counts, bring­ing rare op­por­tu­ni­ties for ten­ants to avail top-qual­ity of­fices at cheaper rents.”

Sav­ills, a real es­tate con­sul­tancy, pre­dicts that sup­plies will grow by 3.37 mil­lion sq m in the se­cond half of this year. The boom in sup­ply could well leave about 8 per­cent of the over­all of­fice space va­cant.


Rise in rents in Zhong­guan­cun in the se­cond quar­ter of this year, ac­cord­ing to Cush­man & Wake­field

Al­though the emerg­ing mar­kets may drive down rents in prime lo­ca­tions, the av­er­age rent of top-grade of­fice space in Bei­jing may stay sta­ble, given the strong de­mand in key fi­nan­cial and tech­nol­ogy dis­tricts such as Zhong­guan­cun.

“The in­creas­ing rents in such ar­eas will level up the av­er­age rental price pulled back by CBD, and the de­mand in Fi­nan­cial Street and Zhong­guan­cun will keep heat­ing up,” said Hirsch.

Ac­cord­ing to Cush­man & Wake­field, another com­mer­cial real es­tate ser­vices com­pany, rents in Zhong­guan­cun have in­creased by 13.8 per­cent year-on-year in the se­cond quar­ter as the coun­try pushes through the Made in China 2025 strat­egy, at­tract­ing more com­pa­nies and re­search in­sti­tu­tions to move in to the tech hub.

“Strong de­mand, cou­pled with lim­ited of­fice avail­abil­ity, has caused rents to rise,” said Sab­rina Wei, head of re­search at Cush­man & Wake­field in North China.

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