Rents for prime office spaces in Beijing will rise above Shanghai rents for the first time by next year, making the capital the most expensive office location on the mainland.
Limited supply and strong local demand are cited by international property consultant DTZ as the reasons for the projected rise in Beijing office rents.
"Beijing will add only 988,348 square metres of new office supply between now and 2014, which is equivalent to 19 per cent of current total stock, most of which is concentrated in the CBD," said DTZ in a newly released research report into the rental market for prime office buildings in 11 cities.
"We also expect Beijing prime rent will surpass Shanghai's equivalent by 2013."
Given that some of the new space in the pipeline will be for self-use, office supply is expected to remain tight in Beijing in the next three years, it added. On the demand side, however, the take-up of space by foreign corporations is expected to slow amid global economic uncertainty.
With limited supply and stable demand, DTZ expects Beijing prime office rents to increase 29 per cent this year and grow at a slower but steady 13 per cent a year over the next five years.
The Shanghai office market, dominated by demand from financial institutions and multinational corporations that are more vulnerable to external uncertainties, witnessed much lower net absorption in the first half than Beijing, at 143,248 square metres. The city's office supply is expected to grow by more than all other locations between the second half of this year and 2014.