Beijing’s market for office space, which has seen an acceleration in prices and rents over the past ten years, is slowing down, but sustained demand and limited supply is expected to raise the overall rental level in the city over the next couple of years.
Within a decade, the Beijing office rent market turned mature, and now ranks in the global top 4. According to global ranking by Cushman & Wakefield, Beijing is the fourth most expensive location to rent office space in the world. The firm’s “Office Space Around the World 2014” report states office space in Beijing’s Central Business District costs an average €1,027 ($1,412) per square meter per year.
That’s more expensive than No. 5-ranked central Tokyo (€1,003; $1,380) or No. 6-ranked Madison & Fifth Avenues in New York ($1,366).
As a result, Beijing faced a decline (1,6%) in prime office rent in 2013. Compared with the last quarter of 2012, rents of grade-A office dropped by 3,6% at the end of 2013. Occupiers have become more cost-conscious amid the weaker domestic and global economy.
But rents likely to continue rising in the next four years, given continued demand and limited supply, analysts say.
Jones Lang Lasalle said continued demand for top-grade space and low vacancy rates will support rents. No more than two Grade A buildings will be put on the market this year: site E9 in Finance Street and Guoson Centre in East Second Ring Road. The vacancy rate in Beijing is very low, a little bit over 5%.
Office rents in the city will rise 3 percent to 5 percent in the next two years, CBRE real estate broker estimates. “Beijing has more upside potential than Shanghai, particularly for the next two to three years,” said a Shanghai-based executive director at CBRE Research.
But large numbers of leases expiring in Beijing’s Central Business District this year will mean that rental increases will be modest.
The outlook for demand from international firms is still mixed with professional services and financial firms expected to remain cautious, while IT firms are expected to continue expanding. However, any slack in demand from international firms will likely be offset by domestic companies.
Looking at the overall situation office space supply in China, Beijing is among the most mature markets when cities in the south of the country are going to have massive addition of office space. The highest growth in percentage is going to be Chengdu, Shenzhen and Guangzhou.
Arguably, the recent measures taken by the Chinese government to encourage entrepreneurship and the creation of private companies will support demand and rising rents. The tax relief policy for small businesses and the establishment of private banks to finance small and medium enterprises should result in an increase of private companies in the areas of finance, insurance and professional services among others. Companies who will necessarily need offices.
Sources:
http://www.businessweek.com/articles/2014-02-25/beijing-office-space-costs-more-than-new-york-and-tokyo
http://online.wsj.com/article/DN-CO-20140123-001700.html
http://www.chinadaily.com.cn/business/2013-12/11/content_17168163.htm
http://www.britishchamber.cn/content/cbre-report-what-next-beijing-office-market
http://www.bloomberg.com/news/2014-04-07/beijing-office-shortage-fuels-third-highest-rents-real-estate.html
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