CAPITAL MARKET LED BY PROPERTY COMPANIES AND END-USERS; LOGISTICS VACANCY RATE HIT RECORD LOW

CBRE publishes Beijing Property MarketView, Q3 2017 Review & Outlook

October 16, 2017, Beijing – CBRE, the world’s leading commercial real estate services and investment firm, announced today the results of its latest research report Beijing Property MarketView, Q3 2017 Review & Outlook. According to the report, Beijing office market, retail, logistics and capital market show below characteristics: 

i. Office: Quarterly net absorption achieved 134,000 sq. m., a 6-year record. Financial and TMT were still the most active industries. In addition, strong demand was seen among energy and professional services industries.
ii. Retail: Shopping malls actively implement transformation, for which themed retail spaces become an emerging option; fashion Brands for the young is more active than in last quarter.
iii. Industrial: The vacant space was almost-full and record-high occupancy rate; average asking rent increased by 0.5% q-o-q.
iv. Capital Market: Nine transactions were closed in Q3 2017, including four office, two retail, one hotel and two mixed-use. 17 transactions in total were closed in the first three quarters, close to the number of 21 in whole year of 2016.

I: PRIME OFFICE SECTOR IN BEIJING

Emerging submarkets becomes increasingly mature, where vacancy spaces continue to be digested
In Q3 2017, two new projects in the Olympic submarket, China Overseas International Center and Hengyi Tower, were delivered, adding a total of GFA 123,000 sq. m. office space to the market. 

Financial and TMT were still the most active industries. In addition, strong demand was seen among energy and professional services industries. All industries above recorded large-size leasing transactions over 5,000 sq. m.. Quarterly net absorption achieved 134,000 sq. m., a 6-year record. Overall vacancy rate declined 0.2 ppt q-o-q to 7.1%. Due to fast take-up of previously delivered projects, individual landlords raised rents and average asking rent edged up 0.1% q-o-q on a like-for-like basis to RMB 426.6 psm per month. 

Over the next six months, 471,000 sq. m. of office space will be completed in CBD, Lufthansa and Wangjing submarkets. New supply will bring occupiers more options, meanwhile, it will put landlords of existing buildings under pressure to keep their tenants. We expected the vacancy rate to rise in the short term and rent to remain stable.

Christina Liu, Executive Director, Advisory & Transaction Services | Office, CBRE Northern China, commented “Emerging office submarkets such as Wangjing and Olympic Area are increasingly mature on infrastructure, amenities and business atmosphere, and become important office location options for high-profile tenants with high-quality and value-for-money new projects. As these submarkets are getting close to the end of supply peak, office demand is expected to further outflow to decentralized areas with long-term potential, such as Lize and Tongzhou.”

II: PRIME RETAIL SECTOR IN BEIJING

Shopping malls actively implement transformation, for which themed retail spaces become an emerging option
In Q3, no new project was completed. Xidan International Mansion was closed for restoration. 

Shopin took over North Star Shopping Center Beiyuanlu Store as the project operator and renamed it as Shopin Plus, which is the first urban outlet combined with Internet technology. Several shopping malls launched new themed retail spaces, e.g. FIT – Park in FUNMIX, Young Street in Xidan Joy Ctiy, industrial themed space in Beijing West Wanda Plaza. Overall vacancy rate decreased by 0.2 ppt q-o-q to 5.2%. F&B continued to expand actively in Q3. Fashion Brands for the young is more active than in last quarter. Beijing SKP introduced I29 A.TESTONI, BA&SH; and Taikoo Li introduced Gilly Hicks. Average shopping mall ground floor rent grew by 0.6% q-o-q on a like-for-like basis to RMB 36.3 psm per day. 

In the next six months, 5 projects are scheduled for completion, offering a total of 336,000 sq. m. of new retail spaces. The addition of the new project is likely to push the current vacancy rate up slightly, and overall rental to remain stable.

Zino Helmlinger, Head of Advisory & Transaction Services | Retail, CBRE Northern China, said: “Lifestyle tenants combining retail and experience elements are active on expansion. In addition, several international brands are expected to open their flagship stores in core submarkets such as Wangfujing. These two types of large-size tenants are playing increasingly important roles among prime retail properties, and infusing core and emerging retail submarkets with new energy.”

III. INDUSTRIAL & LOGISTICS SECTOR IN BEIJING

Logistics market hit almost-full occupancy, pushing up rentals
In Q3 2017, the overall land price of Beijing major industrial zones remained flat q-o-q, reaching at RMB 2,138 psm, with one piece of industrial land transacted in Beijing BDA area. 

As for the warehouse & logistics market, either relocation or new set-up demand was restricted by the lack of space available for lease in the market. The remaining vacant space was occupied by 3PL tenants during this quarter, leading to an almost-full and record-high occupancy rate. Sinotrans Limited leased 7,000 sq.m. in Boxway Logistics Phase II. Average asking rent increased by 0.5% q-o-q to RMB 41.3 psm per month.

Looking forward, the two pipelines previously anticipated to delivered in Q4 2017 will likely delay to H1 2018, mainly affected by Beijing’s newly announced policy which will restrict construction during this winter. The leasing market will be driven by tenant adjustment activities of existing projects. Vacancy rate is predicted to remain low and rental to rise due to strong demand and inadequate new supply.

IV. CAPITAL MARKET SECTOR IN BEIJING

En-bloc transaction number for the first three quarters close to the total for 2016 whole-year
Nine transactions were closed in Q3 2017, including four office, two retail, one hotel and two mixed-use. 17 transactions in total were closed in the first three quarters, close to the number of 21 in whole year of 2016.

Property companies remained the most active buyer and closed four deals, all of which are regarded as value-added opportunities. These transactions reflected purpose for renovation or repositioning. Owner occupiers were also active in the quarter. In addition to one office building sold for self-use, one retail property in Anzhen and one mixed-use property with retail and hotel portions in Daxing were acquired by BHG Group and Jingkelong, respectively. Both retailers were previously the anchor tenant for respective property.

As investment opportunities in core locations are rare to find, investors continued to seek for assets in business parks or decentralized locations, where eight properties transacted at the quarter were located.

Grant Ji, Head of Capital Markets, CBRE Northern China, commented, “Although property companies drive up investment demand for this year, institutional investors, particularly insurance companies, are relatively quieter, and the market lacks super-size deals. Investors tend to wait and see the macro trend after 19th National Congress. Total investment value for the whole year is expected be lower than last year, while still at high level compared to historical years.”
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