CBRE publishes Transformation and Opportunities of Jing-Jin-Ji City Cluster
September 19, 2018, Beijing – In recent years, the Beijing Municipal Government’s has implementation of urban renewal measures targeting the decentralization of non-capital functions has caught the attention of both developers and investors.
CBRE recently published Transformation and Opportunities of Jing-Jin-Ji City Cluster, Series 2: Explore Opportunities from Beijing Urban Renewal Activities, which underpins how urban renewal presents opportunities and heightens standards for developers and investors
The New Master Plan
Issued by the central government in September 2017, the "Beijing Municipality Master Plan (2016–2035)" showcases a 20-year urban development framework for Beijing. The master plan brings a control mechanism to the supply of new commercial real estate in emerging regions as core assets in developed regions become increasingly scarce. Thus, urban renewal and upgrades to inventory facilities will bridge the gap supply and demand in local areas.
Separately, the central government issued “Positive and Negative List of the Use of Construction Projects” in March 2018, which will play a vital role in guiding Beijing’s urban renewal. In effect, the development and use of land and commercial property will be determined more so by the government than by market forces.
While the implementation of urban planning and surrounding policies are expected to restrict the supply of office, logistics, residential and investment properties in the short term, we expect other external market variables to alleviate the supply shortage in the long term.
Office
Trend 1: Spillover and upgrading of existing office spaces
Eric Wang, Executive Director, Advisory & Transaction Services | Office, CBRE Northern China, highlights “Although the overall vacancy rates of Beijing office market remained below 8% in the past three years, the disparity between supply and demand is still prominent. In the future, the four "centers" will continue to create additional office demand and squeeze more occupants out of the central city. Moreover, decentralization of the market will bring about upgrade opportunities though the acquisition of enhanced hardware and software.”
Wang added: “At present, over half of the office buildings in Beijing central city are more than 10 years old, indicating that there will be huge room for improvement for existing office buildings in Beijing.”
Trend 2: Retail Spaces converted for Office Use
Christina Liu, Regional Managing Director / Executive Director, Advisory & Transaction Services | Office, CBRE Northern China, believes: “as tenants pay more attention to the utilization of office space due to increasing rental prices, the activity-based workplace strategy will gain more traction. This strategy can be executed through re-designing and re-planning of office spaces, or the use a third-party joint office. Retail properties with service facilities, ample public and parking spaces, and convenient subway connectivity will suit the functional needs of office spaces in the central city. The retail to office conversion” in the central city has thus become a hotspot of urban renewal in Beijing. It is expected that traditional retail properties will increasingly complement traditional office buildings where leasable spaces are scarce.”
Industrial
Rosemary Li, Head of Advisory & Transaction Services | Industrial, CBRE Northern China, pointed out: “High rentals and the upgrading of tenant structures will also pose higher demands on the refinement and specialization of existing logistics facilities. The current stock of multi-story warehouses in Beijing is far lower than that of Tier 1 and even Tier 2 cities. Intelligent warehousing will improve operating efficiency and reduce labor and storage costs. And, with upgrades in consumption, the rising demand for fresh food and high-end pharmaceuticals will also propel development in the cold-chain logistics segment.”
“We will see intensified proliferation of the application of high-tech tools such as artificial intelligence and automation in logistics.”
Residential
Jane Deng, Head of Residential Services, CBRE Northern China, describes: “The new master plan clearly defines the restrictions on the residential supply within the areas of the 4th Ring Road in Beijing. As a result, long-leased apartments have become a popular channel for investment in Beijing.”
“The diminished supply and strong demand of serviced apartments have driven the average rental increase since 2010. We believe that with the fierce competition to attract high-end talent, employers will increasingly lease these convenient and comfortable serviced apartments for senior employees to retain talent. Commercial properties situated around office submarkets, business parks in Haidian and Chaoyang District where high-tech enterprises are located, and around international schools in the Shunyi District are most suitable for transformation into serviced apartments.”
Investment
Investors’ role transformation in Beijing’s Urban Renewal
Grant Ji, Head of Capital Markets, CBRE Northern China, explains: “The implementation of the new master plan will not erode developers’ and investors’ sentiment toward Beijing’s urban renewal, rather, it will transform how they operate. There will be transformations across:
1. Spatial operations: The scope of usage and end-users for governmental and industrial land and properties have been clearly defined, which will encourage developers and investors to seek closer cooperation with occupants. Cooperation will not only flow through areas relating to the construction and transformation of space, but also through the entire asset management and operational process. Through maximizing the market value of governmental and industrial facilities, sustainable development will ensue.
2. Profit models: The traditional profit-making mode dominated by property sales has reached a bottleneck. Developers and investors will instead seek to derive profits through property rental returns, the development of value-added services for end-users, with role transformation of industrial investors, industrial resource platform operators, construction and property management service providers;
3. Financing: The traditional heavy-asset investment and development model has been challenged by regulatory limitations, such as deleveraging policies and property sales restrictions. The government’s gradual liberalization of asset-backed securities will encourage developers and investors to seek lower leverage and more transparent direct financing channels. The dual supervision imposed by the government also puts higher demands on urban areas. The government will incentivize the development of long-leased renewal planning and investment decision-making.”
September 19, 2018, Beijing – In recent years, the Beijing Municipal Government’s has implementation of urban renewal measures targeting the decentralization of non-capital functions has caught the attention of both developers and investors.
CBRE recently published Transformation and Opportunities of Jing-Jin-Ji City Cluster, Series 2: Explore Opportunities from Beijing Urban Renewal Activities, which underpins how urban renewal presents opportunities and heightens standards for developers and investors
The New Master Plan
Issued by the central government in September 2017, the "Beijing Municipality Master Plan (2016–2035)" showcases a 20-year urban development framework for Beijing. The master plan brings a control mechanism to the supply of new commercial real estate in emerging regions as core assets in developed regions become increasingly scarce. Thus, urban renewal and upgrades to inventory facilities will bridge the gap supply and demand in local areas.
Separately, the central government issued “Positive and Negative List of the Use of Construction Projects” in March 2018, which will play a vital role in guiding Beijing’s urban renewal. In effect, the development and use of land and commercial property will be determined more so by the government than by market forces.
While the implementation of urban planning and surrounding policies are expected to restrict the supply of office, logistics, residential and investment properties in the short term, we expect other external market variables to alleviate the supply shortage in the long term.
Office
Trend 1: Spillover and upgrading of existing office spaces
Eric Wang, Executive Director, Advisory & Transaction Services | Office, CBRE Northern China, highlights “Although the overall vacancy rates of Beijing office market remained below 8% in the past three years, the disparity between supply and demand is still prominent. In the future, the four "centers" will continue to create additional office demand and squeeze more occupants out of the central city. Moreover, decentralization of the market will bring about upgrade opportunities though the acquisition of enhanced hardware and software.”
Wang added: “At present, over half of the office buildings in Beijing central city are more than 10 years old, indicating that there will be huge room for improvement for existing office buildings in Beijing.”
Trend 2: Retail Spaces converted for Office Use
Christina Liu, Regional Managing Director / Executive Director, Advisory & Transaction Services | Office, CBRE Northern China, believes: “as tenants pay more attention to the utilization of office space due to increasing rental prices, the activity-based workplace strategy will gain more traction. This strategy can be executed through re-designing and re-planning of office spaces, or the use a third-party joint office. Retail properties with service facilities, ample public and parking spaces, and convenient subway connectivity will suit the functional needs of office spaces in the central city. The retail to office conversion” in the central city has thus become a hotspot of urban renewal in Beijing. It is expected that traditional retail properties will increasingly complement traditional office buildings where leasable spaces are scarce.”
Industrial
Rosemary Li, Head of Advisory & Transaction Services | Industrial, CBRE Northern China, pointed out: “High rentals and the upgrading of tenant structures will also pose higher demands on the refinement and specialization of existing logistics facilities. The current stock of multi-story warehouses in Beijing is far lower than that of Tier 1 and even Tier 2 cities. Intelligent warehousing will improve operating efficiency and reduce labor and storage costs. And, with upgrades in consumption, the rising demand for fresh food and high-end pharmaceuticals will also propel development in the cold-chain logistics segment.”
“We will see intensified proliferation of the application of high-tech tools such as artificial intelligence and automation in logistics.”
Residential
Jane Deng, Head of Residential Services, CBRE Northern China, describes: “The new master plan clearly defines the restrictions on the residential supply within the areas of the 4th Ring Road in Beijing. As a result, long-leased apartments have become a popular channel for investment in Beijing.”
“The diminished supply and strong demand of serviced apartments have driven the average rental increase since 2010. We believe that with the fierce competition to attract high-end talent, employers will increasingly lease these convenient and comfortable serviced apartments for senior employees to retain talent. Commercial properties situated around office submarkets, business parks in Haidian and Chaoyang District where high-tech enterprises are located, and around international schools in the Shunyi District are most suitable for transformation into serviced apartments.”
Investment
Investors’ role transformation in Beijing’s Urban Renewal
Grant Ji, Head of Capital Markets, CBRE Northern China, explains: “The implementation of the new master plan will not erode developers’ and investors’ sentiment toward Beijing’s urban renewal, rather, it will transform how they operate. There will be transformations across:
1. Spatial operations: The scope of usage and end-users for governmental and industrial land and properties have been clearly defined, which will encourage developers and investors to seek closer cooperation with occupants. Cooperation will not only flow through areas relating to the construction and transformation of space, but also through the entire asset management and operational process. Through maximizing the market value of governmental and industrial facilities, sustainable development will ensue.
2. Profit models: The traditional profit-making mode dominated by property sales has reached a bottleneck. Developers and investors will instead seek to derive profits through property rental returns, the development of value-added services for end-users, with role transformation of industrial investors, industrial resource platform operators, construction and property management service providers;
3. Financing: The traditional heavy-asset investment and development model has been challenged by regulatory limitations, such as deleveraging policies and property sales restrictions. The government’s gradual liberalization of asset-backed securities will encourage developers and investors to seek lower leverage and more transparent direct financing channels. The dual supervision imposed by the government also puts higher demands on urban areas. The government will incentivize the development of long-leased renewal planning and investment decision-making.”
Disclaimer:
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE: CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2020 revenue). The company has more than 100,000 employees serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at https://www.cbre.com.
