China property

Beijing office rent market slowing down

Rents likely to continue rising moderately in the next four years, though, given continued demand and limited supply, analysts say

PUBLISHED : Wednesday, 06 March, 2013, 12:00am
UPDATED : Wednesday, 06 March, 2013, 4:40am


Related topics

Beijing's market for premium office space, which has seen an acceleration in prices and rents over the past three years, is slowing down, but sustained demand and limited supply is expected to raise the overall rental level in the city over the next couple of years.

Sun Xiaodong, a managing director of an immigration company in Beijing, has been looking for a new office in the city's central business district (CBD) for months. He is not happy with the property management service in the office building he currently works in and wishes to move after his lease ends next month.

"I started to look at offices from November. The rent level has since been stable. But it's hard to find a place that offers good value for money," said Sun.

After the Lunar New Year holidays last month it had become even more difficult to find an attractively located office at a reasonable price, as many more firms had entered the market for office space. "If we cannot find any good places we will have to stay here for another year," he said.

Demand for prime offices in Beijing shot up between 2010 and last year as domestic and multinational enterprises expanded aggressively following the global financial crisis. The average rental level for Beijing's grade-A office buildings doubled within three years before softening in the second half of last year due to the slowing economy.

Some industry researchers now expect office demand will pick up again this year as the global and domestic economies begin to stabilise, and rents may grow mildly for the year after some adjustments.

"The prime-office-building market is very sensitive to the macroeconomic environment," said Wei Dong, research director for north China with global property consulting firm DTZ. "We believe China's economy will do better this year and the upward trend in the office building sector will not change."

At the end of last year, Beijing office rents were the seventh-highest in the world, down from sixth-highest in 2011. The turning point emerged in the third quarter of last year, with the quarterly rental growth falling from around 10 per cent to less than 1 per cent in the second half.

Latest industry figures show that the average rent of Beijing's grade-A offices rose by only 0.4 per cent in the fourth quarter to 396 yuan (HK$490) per square metre per month.

DTZ said rents, which are already at a high level, will remain steady in the first half, but are expected to climb by 10 per cent for the whole year. Aside from brighter economic prospects, limited supply is also an important reason for the rise.

Several new grade-A office buildings are likely to be launched this year, providing an extra 300,000 square metres of office space. But supply still lags rising demand, especially in traditional core business areas like the CBD, the Yansha area and Financial Street, the commercial estate broker and consultant Cushman & Wakefield said in a report.

"The major office building areas currently still have relatively low stock and limited future supply," said Andy Zhang, managing director of Cushman & Wakefield China.

"We believe Beijing will remain a 'landlord's market' with a moderate rental growth rate till 2016."

Wei of DTZ said the high rents and limited supply in core areas would accelerate the present decentralisation trend. More price-sensitive companies were turning to newer business zones like the North Third Ring Road and Wangjing area, she added.