Landlords wish to benefit from rental growth with earlier lease renewal Office rents in prime areas of Beijing have picked up modestly since the start of the year on higher take-up and limited space availability, according to Chesterton Petty. Increased leasing activity continued over the first quarter, boosted by demand from companies within the information technology and hi-tech sectors as well as the wider realisation from occupiers that the market has now turned. The property consultant said average asking rentals within grade-A office space in Chaoyang district had increased since the beginning of the year by as much as US$5 per square metre per month, the equivalent of a 15 per cent rise. As of April, Kerry Centre and Beijing Silver Tower both quoted a gross area rental of US$25 to US$28 per sq metre per month. China World Tower II quoted a net area rental of US$45 per sq metre. Sunflower Tower quoted a gross area rental of US$24 per sq metre. Since the beginning of the year, average asking rentals for office space in Dongcheng district have increased by an average of US$3 per sq metre per month, representing a 15 per cent rise. According to Chesterton Petty, China Resources Building and Oriental Plaza both quoted gross area rentals of US$30 per sq metre. Bright China Chang An charged a gross area rental of US$20 per sq metre and Cofco Plaza a net area rental of US$33.50 per sq metre. Most grade-A office developments reported limited space available for lease. Recent transactions included 2,400 sq metres leased by the British Embassy at Kerry Centre, 800 sq metres leased by Goldman Sachs at China World Tower II, and 15,000 sq metres and 10,000 sq metres leased by Cisco and Tom.com respectively at Oriental Plaza Phase I. The consultant said with limited grade-A space available, landlords had become increasingly selective in choosing potential tenants and it was more difficult to secure the landlord concessions available six months ago, including rent-free periods and fit-out contributions. Landlords had also become reluctant to commit to leases longer than three years as they wish to benefit from perceived rental growth with earlier lease renewal. Recently, tenants had been able to sign three-year or longer-lease contracts. Vacancy rates have continued to decline over the past three months. At present, prime office buildings in Chaoyang and Dongcheng districts are more than 80 per cent occupied. Within Chaoyang district, China World Tower II recently reported a near-full occupancy rate, while Sunflower Tower reported 90 per cent occupancy with the top floor the only significant space available. In Dongcheng district, Bright China Chang An reported 85 per cent occupancy, while Phase I of the new Oriental Plaza has almost 100 per cent occupancy. In Haidian district, occupancy rates have reached 90 per cent thanks to government tax breaks for IT-related companies, as well as the limited availability of commercial buildings in the area. Beijing's residential leasing market continued to move downwards due to increased supply despite a slight improvement in activity. Chesterton Petty said the average market rental price for residential housing stood at US$22.50 per sq metre per month, a decrease of 11 per cent from January. Average rentals for prime apartments were US$25 per sq metre per month and villas US$23 per sq metre per month. There had been no significant increase in demand due to new arrivals, but demand from existing expatriate residents in the city had increased as they took advantage of the rent decline to move into better quality accommodation, it said. Residential developments that have experienced rental increases in the past three months include the Beijing Kerry Centre Apartments and China World Trade Centre Apartments. Chesterton Petty said, as of May 1, total stock of residential properties in Beijing available for lease or purchase by foreigners was about 26,000 units. This included both prime and secondary properties within villa and apartment developments. Stock of prime residential properties stood at about 12,000 units. Despite a slight improvement in leasing activity, the overall vacancy rate had remained steady at 28 per cent since the beginning of the year, the consultant said. 'It is anticipated that this rate will remain stable over the next quarter, increasing towards the end of the year as a number of new residential developments come to the market,' it said. At least 2,500 new apartment units are expected to be added to the city's inventory this year. With rising affluence among mainlanders, developers have started to build speculative residential housing to cater for the population's needs. The recently completed New Town Apartments which are to the east of China World Trade Centre is one development marketed as providing quality housing for the 'young, educated and hip community' of Beijing professionals. The development is comparatively inexpensive in rental terms and has also attracted foreign nationals.