January 20, 2015, Beijing – Cushman & Wakefield, the world’s largest privately-held commercial real estate services firm, has published the Beijing Office MarketBeat report for Q4 2014. According to the report, Beijing’s gross domestic product (GDP) grew 7.3% to RMB 1.477 trillion in the third quarter of 2014. Investment in real estate development in Beijing reached RMB 317.33 billion during the period January to October 2014, up 14.8% year-on-year. Of this figure, investment in office development increased by 31% year-on-year to RMB 61.35 billion. The central government in September and November announced regulatory and monetary policy changes aimed at boosting the Chinese real estate market. Together with the diversification of developers’ financing channels through such practices as asset securitization, these stimulus measures are expected to support the recovery of the property sector.
New supply in core submarkets elevated the overall vacancy rate, while rents remained stable. In the fourth quarter, the average effective rent of Grade A offices in Beijing’s five core submarkets was RMB 377.5 per square meter per month (/sq.m./mo) on a gross floor area basis (RMB 544.2/sq.m./mo on a net floor area basis), down 1.31% quarter-on-quarter and 0.57% year-on-year. Guanghualu SOHO II and DRC (Diplomatic Residence Compound) Office Building entered the market as scheduled this quarter. The launch of these properties boosted vacancy rates in the CBD and Liangmahe submarkets to 8.53% and 8.96%, respectively. The overall vacancy rate increased by 2 percentage points to 6.45%.
Annual absorption in five core submarkets turned positive for the first time in three years. Beijing’s core submarkets saw reasonable levels of transaction activity in 2014. As of the fourth quarter, these submarkets represented 80% of all notable Grade A office lease transactions in Beijing. Most of the deals in these localities involved relatively small leasing areas. Transactions involving finance companies continued to rank first in terms of volume, followed by high-tech and professional services. Annual absorption of Grade A offices hit 350,000 sq.m. for 2014, the first year that Beijing has recorded positive annual absorption since the national economy began to cool notably in 2012.
The Wangjing-JXQ locality is gaining popularity among corporate occupiers. This submarket currently offers an attractive average Grade A office rent, 30% lower than the average for the traditional core submarkets. As of the fourth quarter, effective rent on a gross floor area basis in Wangjing-JXQ was RMB 261/sq.m./mo (RMB 371.3/sq.m./mo on net floor area), up 4.2% quarter-on-quarter and 3.5% year-on-year. Due to quick absorption at Wangjing SOHO, the vacancy rate plummeted from 15% last quarter to 2.9% this quarter. We expect that as demand remains strong, rent in this submarket will steadily increase.
Martin Chavez, Director, Commercial, Beijing, Cushman & Wakefield said: “Business parks will increasingly become a favoured location for certain industry sectors due to their attractive rental levels as new supply comes to the market and given their preferential government policies and comprehensive business-friendly support services.”
Meanwhile, developers, keen to stay competitive by catering to the needs of corporate occupiers, are also becoming increasingly aware of the trend of diversification. Billy Lo, General Manager, Beijing Office, Cushman & Wakefield suggests: “Future office development projects will place emphasis on ensuring higher rates of floor area efficiency, creating attractive work environments for employees, and developing improved flexibility in office design to meet the needs of modern office tenants.”
About Cushman & Wakefield
Cushman & Wakefield is the world’s largest privately‐held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position in the world’s major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and management assignments. Founded in 1917, it has approximately 250 offices in 60 countries, employing more than 16,000 professionals. It offers a complete range of services for all property types, including leasing, sales and acquisitions, equity, debt and structured finance, corporate finance and investment banking, corporate services, property management, facilities management, project management, risk management, consulting and appraisal. A recognized leader in local and global real estate research, the firm publishes its market information and studies online at www.cushmanwakefield.com/knowledge.