Beijing office investment falls by 40 per cent

Total investment in Beijing's prime office buildings plunged more than 40 per cent for the first half of this year, yet the city still remains a top attraction for foreign institutional investors looking for good returns from high-quality assets, a new study says.

Cushman & Wakefield, a global commercial real estate services firm, said in the study that Beijing's en bloc prime office sales contracted by 44 per cent year on year to US$1.37 billion in the first six months of this year.

Meanwhile, investment in office buildings development is also cooling down, with the year-on-year growth falling to 19 per cent in June from 38 per cent at the end of last year.

"A key reason behind this is that all the state-owned enterprises, which were major buyers of Beijing's high-end offices, have suspended their purchasing since last year," said Li Jian, national director of capital markets at the consulting firm.

The central government issued a circular last July, forbidding government departments as well as state-owned enterprises from building or purchasing new offices for five years as part of its frugality campaign.

In April, Gaw Capital, a Hong Kong-based real estate private equity fund, bought Pacific Century Place, a commercial complex originally owned by Pacific Century Premium Developments in southeastern Beijing for US$928 million, so far the city's largest deal this year.

Eric Pang, head of capital markets of real estate services provider JLL, said that a number of foreign institutional investors are actively looking for high quality assets in Beijing at the moment.

"Although the macro picture remains uncertain, Beijing's commercial real estate assets are still attractive to investors because of their strong rental profile and improved transparency conditions," said Pang.

"Of them, foreign institutions are showing more of a willingness to pursue value-add opportunities."