Beijing office rents up despite fresh supply

PUBLISHED : Wednesday, 30 July, 2008, 12:00am
UPDATED : Wednesday, 30 July, 2008, 12:00am

Office rents in Beijing's central business district continued their upward march in the second quarter, despite the weight of fresh supply coming onto the market as new office space hit a record high in the capital city.

New office supply in Beijing would rise to a record 1.58 million square metres by the end of this year, according to Meggie Qin, a director of research at property consultant CBRE in northern China.

Nonetheless, rents of prime offices were up 3.6 per cent in the second quarter from the three months to March.

The increase surprised letting agents who were braced for a downturn in rentals as the new supply came onto the market.

But the decision by some developers to postpone completion release dates because of tightened property loan conditions, and delays caused by the diversion of resources to deal with construction for the Olympic Games combined to put some checks on the growth in supply, the agents said.

As a result, total supply of office space in the first half was lower than the market was expecting.

Demand remained strong, noted consultant Colliers International, particularly for the limited supply of gradeA office sought by expanding multinational corporations and large-scale domestic enterprises.

Driven by deals such as the expansion by Guangdong Skyworth into 3,100 square metres of space in the Global Trade Centre, the leasing market was active, it said.

As a result, prime office rental deals surveyed by Colliers rose an average 3.6 per cent to US$38.09 per square metre per month in the second quarter from the end of March - ranging from a 3.81 per cent increase to US$30.66 per square metre in the Zhongguancun business district outside the CBD, to a 2.37 per cent rise in average CBD rentals to US$42.24 per square metre.

Rival consultancy Savills said its survey of new rental deals for gradeA offices showed that average rents rose 6.61 per cent to 180 yuan (HK$206) per square metre in the second quarter, representing the fastest pace of growth for the past seven years.

The difference between the two growth rates measured by the rival agencies was due to different samples of office buildings and areas.

Joan Wang, a senior manager of research and consultancy at Savills Beijing, agreed that the strong growth in office rents arose partly from lower than expected supply as a result of construction delays related to preparations for the Beijing Olympic Games.

According to international property agency Vigers, average rentals were not dragged down in the first half as most of the new offices taken up in the market were top grade for which asking rents were higher.

Vigers said its research showed that office vacancy rates had dropped to 14.5 per cent from 17 per cent at the end of last month as demand remained strong.

However, take-up rates are now expected to slow due to concerns about securing renovation permits during the Olympic Games which start on August 8, since renovation activity will be prohibited in the capital city during the event.

CBRE's Ms Qin, meanwhile, said new office supply in the second half could amount to 990,000 square metres, of which most will be gradeA offices.

The new projects included Henderson Land's World Financial Centre and PICC Building.

Most of the projects will be completed in the fourth quarter.

She expected demand for gradeA offices in the capital city would remain strong in the second half and that rents would continue to rise. However, vacancy rates could also start rising, she added.