Skip Ribbon Commands
Skip to main content

News Release


CBD office rents stabilized in 1Q14; Retail net take-up declined due to lack of space

According to JLL Beijing 1Q14 Property Review

​ JLL’s 1Q14 property review revealed the following:

• CBD Grade A office rents stabilized and the overall Beijing Grade A office market vacancy rate declined to 4.3%;

• Retail net take-up declined due to lack of available space combined with this being the traditional low season for new leases and expansions during Chinese New Year;
• Non-bonded warehouse rents were flat for the third consecutive quarter as the market recorded 21,000 sqm of negative net take-up as some e-commerce companies relocated to Langfang or Wuqing;

• The investment market was still relatively active despite a lack of high-quality en bloc transactions;

• The high-end residential sales market received a supply injection, registered a decline in transaction volumes and enjoyed steadily climbing prices.

Grade A Office

Net absorption declined to 46,200 sqm in 1Q14, down from 61,600 sqm in 4Q13, but firms from several industries continued to look for Grade A office space. The finance and insurance industries accounted for the largest proportion of new enquiries received by JLL. This trend was corroborated by reports from landlords that cash-rich wealth management companies were very active in looking for space. The IT and hi-tech industries also drove demand for Grade A space. The largest lease signed in 1Q14 came from Samsung Electronics which took over 18,000 sqm at the recently completed Fortune Financial Centre in the CBD. Several international carmakers have expansion plans in place and JLL continued to receive enquiries from the automotive sector in 1Q14. Meanwhile, demand from the professional services sector was again mixed, and was characterized largely by lease renewals.

There was no new Grade A supply in 1Q14. Fortune Financial Centre, completed in 4Q13, made significant leasing progress and contractual occupancy has reached 60%; however, as fit out work was still underway, most tenants had not yet moved in. Take up at other projects in the CBD caused the CBD vacancy rate to decrease to 10.8% from 11.6% in 4Q13. Several tenants moved in to Parkview Green, located in East Chang’an Ave, contributing to a 0.7 percentage point q-o-q decline in the overall vacancy rate, which was 4.3% as at end-1Q14.

The Beijing Grade A office market recorded rental growth for the second consecutive quarter in 1Q14. The East Chang’an Ave and 3rd Embassy Area submarkets drove overall rental growth of 0.7% q-o-q while rents in Finance Street, which registered strong growth in 2013, were flat q-o-q. Moreover, the CBD appears to be stabilizing earlier than expected as rents did not register a decline for the first time since 1Q13. Several Grade A buildings in the CBD raised rents, but this trend was offset by rental declines at some Premium Grade A buildings there. Eric Hirsch, Head of Markets for Beijing JLL, stated “With limited new supply in 2013 and increasing activity from tenants, landlords are becoming more optimistic, and therefore less flexible during rental negotiations. As such, we expect rents to maintain their upward momentum over the next six months.”

Prime Retail

Beijing’s Urban retail stock shrank in 1Q14, after several malls transformed retail space to office use. Among them, City Mall in the Third Embassy Area converted all of its retail space to office use, while Zhongkun Plaza in Zhongguancun converted a portion of its retail space to office use.

The overall vacancy rate declined to 6.0% in 1Q14 from 8.1% in 4Q13, following the withdrawal of a number of vacant spaces from the market. However, the vacancy rate in Core areas marginally increased to 4.1% in 1Q14 from 4.0% in 4Q13 as several landlords chose not to renew leases to adjust tenant mixes. The 50,000 sqm (GFA) Shimao Gongsan project in the Third Embassy Area was transformed from a department store to a shopping mall, also adding to the Urban market supply.

Net absorption declined q-o-q due to the lack of leasable space and the traditionally low season for new leases and expansions. By retailer segment, there was no evidence of demand for new setups from luxury retailers, and luxury brands instead preferred to expand their existing stores. However, demand from the fast fashion and affordable luxury sectors remained strong, as did demand from F&B operators.

Rents in the overall market increased partly due to the withdrawal of low-rent spaces in non-Core areas. Retailers were more eager to take up space in established malls, and as such, landlords at these projects continued to drive market rental growth. But without the same confidence, small and mid-sized retail developers were more conservative in raising rents.

“We have received more enquires from both tenants and landlords recently,” adds Alice Law, Head of Retail at JLL​, Beijing. “Tenants need our help to identify and expand in malls which are good at attracting their target consumers, while some landlords would like to tap our experience on repositioning, refurbishment and tenant mix adjustments to strive for better rental performance.”


Leasing activity in the non-bonded warehouse market was restrained in 1Q14. Over 21,000 sqm of non-bonded warehouse space was handed back to the market, the first time negative net take-up has been recorded since 3Q09. The activity responsible for this phenomenon was mainly e-commerce firms relocating their main operations to neighbouring areas in Langfang and Wuqing which allows them to service both the Beijing and Tianjin markets from one location. Moreover, rents in these areas are much lower than in Beijing. Third party logistics (3PL) companies were most active in the leasing market in 1Q14. Traditional brick-and mortar retailers are expanding operations to include online channels. However, demand from traditional retailers was weaker due to slower retail sales growth in 1Q14.

The negative net absorption led the overall vacancy rate to increase 1.3 percentage points q-o-q to 3.6% in 1Q14. We expect this to be a temporary situation in advance of robust demand filling in vacant spaces soon. Sharon Luo, Head of Industrial for Beijing JLL stated: “Although some e-tailers are relocating outside of Beijing, we have received several enquiries and the market appears to be picking up. Several landlords and investors remain optimistic about the market and are actively looking for development opportunities in and around Beijing.”

There were no completions in 1Q14 and thus total stock remained unchanged at 1.6 million sqm. In mid-2014, Yupei is expected to complete a 92,000 sqm project in Yongledian and China Resources is expected to complete a 44,100 sqm project in Tongzhou Logistics Park.

A lack of available space limited new leasing transactions and the market was again characterized largely by renewals. Moreover, landlords have been flexible with tenants during rental negotiations, preferring to lease space to high-quality tenants with a good track record. As such, the average net effective rent was flat q-o-q and stands at RMB 1.09 per sqm per day, an increase of 3.5% y-o-y.


The investment market was relatively quiet, but a few players still managed to make some noise in 1Q14. Beijing Century Hengfeng Real Estate Development Co. Ltd became the sole owner of Guanjie Mansion, after purchasing 66 units and 111 underground parking lot spaces from Citychamp Dartong. The RMB 1.081 billion deal added 30,885 sqm of Grade B office space to Beijing Century Hengfeng’s existing 24,175 sqm at the same project, acquired in 4Q13. Meanwhile, Beijing Capital Land sold a 31.5% share-interest of the land plot F-02 in Lize District to ICBC International Investment Management. Beijing Capital Land also sold a 50% share-interest in the F-03 plot to Diversified Elite Ltd. In the retail market, Swire Pacific Ltd became the sole owner of Taikoo Li Sanlitun after acquiring Gaw Capital Partners’ 20% share-interest in the project. In early April, PCPD agreed to sell Pacific Century Place in the 3rd Embassy Area to Gaw Capital Partners for an initial consideration of USD 928 million.

High-quality commercial assets remain limited, but development sites, strata-tilted non-Grade A office assets and space conversions continue to come online. As liquidity tightens further from end-2Q13, some developers were actively looking for partners to finance their development projects. Shopping malls that failed to meet performance expectations, meanwhile, including Dazhongsi Zhongkun Plaza at the North 3rd Ring Road and Ito Yokado in Wangjing, looked to transform space into office use with the hopes of improving returns. 

Long-term opportunities lie ahead for investors to acquire and enhance assets. We maintain our view that Beijing’s office sector has hit bottom and is expected to experience a modest pickup from 2013 to 2014. Prime shopping malls are increasingly favoured by retailers while landlords at these projects retained strong bargaining power in rental negotiations. The 12th National People's Congress and Press Conference in March 2014 reinforced momentum for economic reforms and the promotion of urban schemes, which not only ensures sustained demand for office space, but also supports income and retail sales growth in the long-run. “Improvement in the leasing market will likely strengthen the faith and interest of investors in Beijing’s office investment market. Although high-quality assets were still limited, investors continue to keep a close eye on investment opportunities. In addition, quite a few shopping centres that lack experienced and professional operations are looking for better operators or are considering converting their space to office use,” said Eric Pang, Head of Capital Markets at JLL North China.


Supply of high-end residential units for sale increased significantly in 1Q14. A total of 871 luxury apartment units entered the pre-sale market, 180% more than the total for all of 2013. Another 550 high-end villa units, 85.7% of the total 2013 supply, received pre-sale certification. Much of the supply rebound resulted from the Beijing government’s loosening of controls on high-priced residential projects, enabling pre-sale approval for a number of previously pending projects.

Transaction volume slipped slightly q-o-q. Only 526 luxury apartment units and 219 high-end villas were sold, down 12.5% and 11.3% q-o-q, respectively. Limited stock, the traditional low season around Chinese New Year and buyers’ wait-and-see attitudes ahead of the NPC and CPPCC sessions all contributed to a low transaction volume in the high-end market.

Capital values for luxury apartments and villas soared by 6.6% and 11.9% q-o-q, respectively. Despite the increase in inventory and lower transaction volumes, the market remains undersupplied, driving capital value growth. Moreover, newly launched projects achieved higher-than-market average prices further contributing to the rise.

Leasing demand was slightly lower compared to the same period last year. Smaller units proved more popular than larger ones, indicating that the housing budgets offered by MNCs were still low. Lee Garden, a serviced apartment project in Wangfujing, added 199 refurbished units to the market. The re-launch of Lee Garden caused the overall vacancy rate in the serviced apartment market to increase to 11.2%, up 2.1 percentage points q-o-q. But weaker demand and MNCs’ strict housing budgets pulled down rents at luxury apartments, serviced apartments and villas by 0.5%, 0.6% and 1.2% q-o-q, respectively.