Beijing’s office rents have increased by 41% in the last year.
According to a new Jones Lang LaSalle research, the rent of Grade A office and warehouse space climbed throughout 2011:
Office — Rents have risen dramatically as a result of continued high demand and limited available space.
Retail — In 2011, the overall vacancy rate fell due to strong demand from both domestic and foreign retailers. apartments for sale qatar
Market for Offices
The Beijing office market had a record year in 2011, with rents soaring by 41% year over year.
In 2011, the total amount of fresh supply accumulated was over 750,000 sqm, nearly the same as in 2010. New supply from lease-only projects, on the other hand, was scarce, and there was none at all on Finance Street. 11 Grade A office projects were built this year, four of which were for self-use, accounting for 42.0 percent of new supply. As a result, overall Grade A stock has risen to almost 6.2 million sqm.
Despite uncertainties and volatile external forces affecting domestic corporate growth, demand in the Beijing office market remained high throughout the year. The total net absorption in 2011 was 860,000 sqm, showing that the Beijing office market had another strong year in the spirit of 2010. From 1Q11 to 3Q11, the demand for office space continued to expand at a solid rate. Despite global financial market turmoil and the European sovereign debt crisis lowering global economic growth predictions in 4Q11, the Beijing office market saw increased demand, albeit at a slower rate than in previous quarters. Indeed, some hotspot sub-markets, such as Finance Street, have a long line of customers waiting for any space that becomes available.
Leasing demand was driven by financial services companies, consulting firms, law offices, and high-tech and manufacturing industries, in addition to demand for self-use buildings, which came largely from domestic companies. On the back of robust demand from both self-use owners and tenants, total vacancy rates continued to plummet and stayed at an all-time low, despite the addition of 750,000 sqm to the market. By the end of 2011, the vacancy rate had risen to 9.1 percent. Most vacancy rates fell below 10.0 percent in several submarkets, with vacancy rates as low as 0.0–5.0 percent on Finance Street, East Second Ring Road, and Zhongguancun. At the conclusion of the fourth quarter, two new projects with a total GFA of nearly 140,000 sqm joined the market, one of which is not in a prime commercial location. Without these structures, the total vacancy rate would be 7.0 percent, with a 96.4 percent commitment rate.
Throughout the year, average net effective rents were greatly bolstered by continued high demand and restricted supply, particularly in the CBD and Finance Street submarkets. Rents grew to RMB 293 per sqm per month (based on GFA) in 4Q11, up 9.1% q-o-q and 41.4 percent y-o-y from 3Q11.
In 2012, seven projects with a total GFA of roughly 420,000 sqm are expected to be completed. The remaining area will be kept for self-use owners, with leasing-only projects accounting for half of the new supply. Despite lower economic growth estimates and record-high rents, the Beijing office market is likely to rise steadily in 2012, with net take-up exceeding 400,000 square meters. The overall vacancy rate is expected to stay low, around 9%, while rents are expected to expand at a slower rate than in 2011.
The retail industry
In the Beijing retail market, an increasing number of retailers are competing, and some projects have undergone repositioning to improve their competitiveness.
Inside Beijing’s Fifth Ring Road, three shopping malls, China World Mall Phase III, Shine City, and Galleria, opened in 2011.
The total GFA of these projects was 140,000 sqm, representing an 82 percent drop in new supply year over year. Because many central shopping malls have been repositioned and upgraded, there is more available space for merchants in core regions, which has slowed the leasing of new developments. In addition, numerous new projects that were supposed to open by the end of 2011 were pushed back to 2012.
Consumer demand for high-end items and services surged in 2011 as local residents’ disposable income increased, and as a result, jewelry stores, luxury brands, and supermarkets were busy expanding and upgrading. The tenant mixes and shopping environments of several retail malls in the CBD, Wangfujing, and Xidan commercial sectors were updated in 2011. Under-performing brands were replaced by a variety of luxury brands and brands with no prior presence in Beijing. In China World Mall Phase III, almost 40 luxury jewellers and clothing stores opened, 92 foreign brands opened in Shinkong Place, and several creative high-end brands, such as MIUMIU and Alexander Wang, opened in the Village North. In addition, high-end supermarkets like OLE and BHG have been rapidly growing in core business locations.
Fast fashion retailers such as UNIQLO, ZARA, H&M, and GAP continued to flourish in Beijing’s shopping malls and community malls due to low prices and trendy designs. In 2011, ZARA built seven new stores in Beijing, along with sister brands Stradivarius and Massimo Dutti, and GAP and H&M each aim to add two new stores in 2012. Urban Renewal and MC Jeans, two local fashion firms, have been busy scouting locations to help them expand. As a result of this robust demand, Beijing’s retail market net absorption reached 310,000 sqm in 2011.
With retailers’ aggressive expansion, the overall vacancy rate continued to fall in 2011, falling to 10% in 4Q11, a 3.9 percent decrease year-over-year. Many successful mature projects raised their rents numerous times throughout the year, resulting in an increase in the average rent in the Beijing retail sector. Net effective retail rentals increased 12.3% y-o-y to RMB 701 per sqm per month (based on NLA).
In 2012, 14 new projects will be launched, bringing the total stock to 800,000 sqm. The majority of these new developments are in the Chaoyang and Dongcheng districts. International developers such as CapitaLand and Swire are seeing good release rates of 70 percent to 85 percent on their projects. Due to optimism about the future of Beijing’s retail business, a number of premium and new-to-Beijing companies have signed leases in the Wangfujing region. Retail demand is expected to remain strong in 2012, according to Jones Lang LaSalle, while net effective rent growth will moderate due to discounts offered in newly launched developments. Due to the influx of new supply, vacancy rates are likely to rise.