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News Release


Office rents declined in 2013; Core-area shopping centre vacancy hits a 13-year low

According to Jones Lang LaSalle Beijing 2013 Property Review

Jones Lang LaSalle’s 2013 property review revealed the following: office rents bottomed out on the back of sustained demand; the core-area shopping center vacancy hits a 13-year low; logistics rental growth was again limited by a lack of leasing transactions due to tight supply; domestic institutional investors were more active in 4Q13.

Grade A Office

A consistent theme through most of 2013, demand from domestic firms was robust while that from international firms was mixed in the private leasing market. Despite tighter monetary conditions and recent declines in lending, the domestic banking and finance sector remained active in looking for office space. The IT sector was active in sourcing leasing opportunities, taking up spaces primarily in Zhongguancun but also in other submarkets. Demand from international professional services and legal firms was mixed with many firms taking a cost-savings approach while there were instances of new setups. Demand from the automotive sector remains strong and many carmakers plan to expand their footprint in Beijing. Net absorption of 61,600 sqm was recorded in 4Q13, a modest increase of 18,900 sqm from 3Q13 and bringing the whole-year net take-up for 2013 to 304,700 sqm.

Due to the large number of lease expiries throughout 2013, the leasing market was characterized by renewals. Landlords were flexible in rental negotiations, cautiously balancing rental increases against vacancy pressure leading market rents to decline 1.6% y-o-y across Beijing in 2013. Market rents declined in several areas of the city, but strong performance in Finance Street pulled overall rental growth up to 1.0% q-o-q in 4Q13. Eric Hirsch, Head of Markets at Jones Lang LaSalle Beijing, said “continued demand for Grade A space amid the current low vacancy environment is likely to provide support for rents in 2014. However, we expect any rental increment in the CBD to be modest given the large number of leases expiries continue to be seen this year. Those submarkets with less vacancy pressure will potentially see rents going up by some single-digit levels.”

Vacancy level is expected to remain low. One new project completed in 2H13, adding 150,000 sqm of Grade A office space and bringing the whole-year total new supply for 2013 to 309,800 sqm. In the year ahead, we expect to see no more than two Grade A buildings entering the market in 2014 and thus the vacancy level is expected to remain low. As such, market rental growth is likely to pick up in 2014 but remain in low single digit territory.


Core-area shopping center vacancy hits a 13-year low. The persisting demand for prime retail space was reflected in the frequent tenant adjustments at mature shopping centre projects and in the high occupancy rates achieved at newly completed projects in 4Q13 and throughout 2013. The vacancy rate in the core market further decreased by 1.5 percentage points q-o-q to 4.0% in 4Q13, the second lowest since 1Q00. However, the withdrawal of HQ Department Store from Zhongkun Plaza in Zhongguancun due to a potential conversion to office space lifted the overall Urban vacancy rate to 8.1% from 7.6% in 3Q13.

Strong leasing demand in fashion and F&B trades. By retailer segment, fast fashion brands and mid-market fashion labels were active in the leasing market. Food and beverage operators as well as entertainment sector tenants also continued to expand, a trend that has been consistent throughout 2013. Shopping centre landlords were keen to be more creative in refining tenant compositions to fight against the fast rising competition from e-commerce trades.

Following two quarters of no new supply in the Urban market, 4Q13 saw completion of two new shopping centres. Newly renovated Kerry Centre in the CBD and Aegean Sea Shopping Centre in Taiyangong both managed to achieve an occupancy rate of over 90% upon opening. Whole-year shopping centre new completions amounted to 208,500 sqm, the lowest since 2006.

The reduction in leasable stock has led to sustained rental growth, particularly in the core market. “Rising competition from e-commerce trades coupled with softer demand from up-market retailers have seen some shopping centre landlords developing plans to convert part of their retail portfolios for other commercial usage. This will reduce retail space supply in some locations and provide support for market rental growth. We expect leasing demand will remain healthy in 2014 and Beijing is not expected to run into any oversupply risks” adds Alice Law, Head of Retail at Jones Lang LaSalle, Beijing.


Net absorption of non-bonded warehouse space declined to 7,600 sqm in 4Q13, a drop of 75,800 sqm from 3Q13. A lack of new supply saw the market vacancy rate decline 0.5 percentage point q-o-q to 1.5% in 4Q13. Most net-take up has been supply driven in recent quarters in the severely supply constrained logistics market. Thus, the drop in net absorption largely reflects a scarcity of available space in the leasing market rather than a softening of demand. Indeed, leasing managers report receiving enquiries from both domestic and international 3PL companies looking to upgrade, but tight vacancy in the market has limited their options. As such, many tenants are forced to settle for lower quality warehouses or occupy space outside of Beijing. Consistent with recent trends, third-party logistics and e-commerce companies were active in the leasing market.

Rental growth was flat q-o-q. Most projects were content to sign tenants at rates consistent with prevailing market levels, increasing passing rent but not driving market rental growth. One reason for the subdued market rents has been the sharp increase in supply in neighbouring areas of Hebei Province, Langfang, and Wuqing District in Tianjin. Linda Chan, Head of Industrial for Jones Lang LaSalle Beijing, stated “continued retail sales and fast expansion of e-commerce across China are expected to continuously drive demand for non-bonded warehouse space in Beijing. However, tenants’ rental affordability is likely to limit rental growth despite a tight warehouse vacancy environment.”

There was no new supply delivered in 4Q13. Across the whole of 2013, four projects delivered a total of 156,300 sqm of new warehouse space. Supporting the notion that the market is undersupplied, these projects have achieved a combined 95% occupancy rate. Another four projects are expected to be completed in 2014, boosting total stock by 266,100 sqm.


Three transactions highlighted the Beijing investment market in 4Q13. Go High Fund, a private equity fund acquired Danyang Mansion, an office building located at the southeast 3rd Ring Road for RMB 1.5 billion. Citychamp Dartong bought 59 units in Guanjie Mansion (total GFA of about 18,100 sqm), an office building under construction in Taiyanggong for RMB 1.07 billion. The building is expected to be completed in 2015. In the CBD, the retail podium of Beijing International Center (37,800 sqm) was sold to Beijing Xunchi Investment Management Co Ltd for RMB 711 million.

Domestic institutional investors were more active. In 2013, the Beijing investment market has seen domestic institutional investors becoming increasingly active in looking for buying opportunities. Some domestic institutional investors including insurance companies, private equity funds and venture capital funds were keen in acquiring real estate assets including but not limited to turnkey developments. There were also instances where experienced international investment funds opted to purchase strata-titled non-Grade A office assets, a strategy that is not usually seen in other parts of the world. These combined to highlight the fact that there is still a lack of high-quality commercial real estate assets for sale in Beijing.

The commercial sectors across China are expected to perform more strongly in 2014 than in 2013 leveraging on the improved global economic outlook in recent months. The chance of have an economic hard-landing in China is much reduced although any growth driven by the external sectors is expected to be modest. It is our view that the office sector in Beijing has reached the bottom and while a strong rebound in leasing demand is unlikely, a modest pick-up from 2013 is possible in 2014. This combined with stretching vacancy levels in most of Beijing’s office submarkets will provide support for rental stablisation in 1H14 before building a stronger platform for a more noticeable rebound in 2015. Eric Pang, Head of Capital Markets at Jones Lang LaSalle North China, points out that “the improved outlook of the office leasing market will provide a strong reason for investors to keep a very close eye on office investment opportunities in Beijing. The central government’s policy direction towards economic reform will ensure a sustained demand for office space in the key cities of China and Beijing has always been a strategic market for many corporations in the world.” The combination of economic reforms and urbanization schemes will also support income and retail sales growths in the long run, providing a good backdrop for shopping centre investments in China. “There are some shopping centres out there in Beijing currently being operated by less experienced landlords. These assets can certainly provide sophisticated investors with room for asset enhancement and eventually become a treasure for them to ride on the long-term growth story of China’s retail market”, added Pang.