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News Release


CBD office rents rose for the first time in six quarters; two malls opened with high occupancy rates

According to JLL Beijing 2Q14 Property Review

BEIJING, July 17 2014 – JLL's 2Q14 property review revealed the following:

  • CBD rents increased 2.9% q-o-q due to increasing confidence from landlords;
  • F&B chains expanded rapidly through the city;
  • High-end residential prices inched up despite poor market sentiment;
  • Net absorption of non-bonded logistics surged mainly due to 3PL demand;
  • Gaw Capital entered into a deal to buy Pacific Century Place for USD 928 million; foreign institutional investors are seeking value-add investment opportunities.

Prime Office

The market registered 39,800 sqm of net absorption, the majority of which came from Fortune Financial Centre as tenants moved into the building. A lack of new supply pushed market vacancy down slightly q-o-q to 3.7% from 4.3% in 1Q14. Domestic companies again accounted for the vast majority of new lettings, while foreign firms generally renewed or leased comparatively smaller spaces. The banking and insurance industries were the main drivers of demand and several new lettings were signed by the sector. Landlords continued to experience demand from the booming wealth management industry but exercised caution during negotiations due to instability of these small companies. Demand from IT and high-technology firms remained strong and a global software company signed a large lease in the Third Embassy Area. There was limited net absorption from professional services, as they generally renewed existing spaces. No new supply completed in 2Q14. Fortune Financial Centre (FFC) in the CBD, the most recent completion, had an increase in commitment to approximately 65%, up 5% q-o-q. Leasing progress slowed as only high-zone spaces remain available.

CBD rents rose 2.9% q-o-q, the first increase seen in six quarters. Strong leasing velocity in FFC in recent quarters, coupled with limited availability in the CBD, led key buildings such as China World to regain confidence and raise rents. Third Embassy Area rents grew 1.1% q-o-q, the second consecutive q-o-q increase. Most other submarkets were flat or registered minimal increases; however, citywide rents increased 1.1% q-o-q. Eric Hirsch, Head of Markets for JLL Beijing, commented: "Landlords and tenants are becoming more discerning as the market matures and there is an increasing understanding that not all buildings are created equal."

CBD rents are set to rise in the next 12 months as landlord confidence increases; we expect this to be backed by limited available space in the market coupled with a strong demand outlook for domestic firms. With the exception of FFC, most available spaces in the CBD are under negotiation. Throughout the city, wealth management companies are likely to continue to be a key demand source, although landlords are likely to exercise caution towards this sector. Domestic financial firms are set to continue to expand in Finance Street, but Grade A rental growth may be held back by competition from Grade B in Finance Street and other submarkets – particularly the CBD.

Prime Retail

Retail sales growth was faster in April and May compared to the same period last year. Landlords were more aggressive in holding events to drive foot traffic to coincide with Mother's Day, Children's Day, and the World Cup. Demand was driven by F&B brands, particularly Grandma's Home, Nanjing Dapaidang, Nan Xiao Guan, Pizza Express, as well as children's brands, including Chloe Kids, Deloras, Gusella, Sarabanda and Pororo (children's entertainment centre). International apparel retailers remained keen to open their first stores in Beijing in core locations, evidenced by Dickies, Simonetta and Chrome Hearts. Most brands continue to be highly selective in choosing locations.

Two malls were completed this quarter. Beijing Mall (78,000 sqm), developed by New Yansha Group, opened in Wangfujing with 90% occupancy. Ocean International Centre Phase II was completed with a GFA of 19,000 sqm. Developed by Sino-Ocean Land and located along the 4th Ring Road, the property serves local residents and was fully occupied upon opening. Another mall converted retail space into office use, continuing a trend of 1Q14. Wangjing International Centre closed its 20,000 sqm-anchor, Yokado Department Store, and changed the space into offices for strata-title sales.

Urban ground floor open-market rents increased 1.9% q-o-q on a chain-linked basis, with higher increases recorded in key top-performing properties. Vacancy in the market increased marginally by 30 basis points. One en-bloc transaction was recorded in early 2Q14. Pacific Century Place, a mixed-use project with a total GFA of 170,000 sqm (Retail GFA of 75,000), was sold by Pacific Century Premium Developments to Gaw Capital for a total price of USD 928 million.

New supply in 2014 is expected to unleash pent-up demand in Wangfujing. Two shopping centres totalling 88,000 sqm of GFA are slated for completion in the second half of 2014 in overall urban areas. Both new centres are expected to target the mid-market. Several luxury malls, including Seasons Place, Jinbao Place and China Central Place are showing renewed emphasis on affordable luxury brands and are attempting to increase their F&B and services portions. With some properties focusing on more traffic generator tenants, and fewer specialty stores, base rental income growth may slow but there remains potential to generate more turnover rent. Alice Law, Head of Retail North China for JLL commented, "Following rapid growth of the suburban population, the next 12 months are also the beginning of a supply wave of super-regional malls in suburban areas of Beijing, such as Inter IKEA."


The sales volume for the mass residential market was nearly flat, falling slightly by 3% q-o-q in 2Q14. Compared to the flat transaction volume in the mass market, demand in the high-end residential primary sales market improved slightly in 2Q14. Five luxury apartment projects totalling 617 units and four high-end villa projects with 315 units were released to the market in 2Q14. Over that period, the high-end apartment sales volume increased 12% q-o-q, but was still 61% below that of the same period last year. Meanwhile, total villa sales climbed 23% q-o-q in the same period, an increase of 13% y-o-y.

The weak-but-rising transaction volume supported a continued increase in transaction prices. The primary high-end apartment market recorded price growth of 8.4% q-o-q, while the secondary market increased 1.2% q-o-q. Some landlords facing rising vacancy rates offered rental promotions to attract tenants. Due to weak demand from expatriates and insufficient demand from other sources, luxury apartment rents were flat at 0.3% while villas inched down 2.2% q-o-q. However, rents for serviced apartments rose slightly by 0.4% q-o-q as high-occupancy projects had greater bargaining power.

With home purchase restrictions to remain in effect, the high-end sales volume is likely to remain low for the rest of 2014. While the upward trend for rising home prices is not projected to change, price growth is expected to be limited for 2014. The overall vacancy rate is likely to decrease as no new serviced apartment projects are expected to enter the market in the next 12 months. "Given the less aggressive expansion of foreign companies in China, we do not expect leasing demand in the high-end market to see any quick upturn in 2014, and thus, rents are expected to be relatively stable," said Steven McCord, Head of North China Research at JLL Beijing.


Third party logistics firms (3PLs) continued to drive demand for high quality non-bonded warehouse spaces. Two projects experienced strong take-up, including 15,000 sqm from two foreign 3PLs and 10,000 sqm from a domestic 3PL. In a rare example of pre-leasing, one 3PL company signed a relocation deal at an upcoming project in Tongzhou Logistics Park (TLP). Additional demand came from the pharmaceutical and medical technology industries. In a bid to maximize profits, several warehouse operators, which offer typical 3PL services such as picking, packing, and delivery to "last mile" distribution points, are changing their strategy to lease only to tenants who use these services instead of renting to pure warehouse tenants.

The relocation of e-commerce main distribution centers from the city to outer areas has weakened the pricing power of Beijing landlords, restricting rental growth. Few major e-commerce players continue to operate their main distribution centers in Beijing proper, with many having relocated their main distribution centers to Wuqing and Langfang between Beijing and Tianjin. However, these large e-commerce firms continue to operate smaller distribution centers and "last mile" delivery points within Beijing. "Despite the trend of e-commerce, sufficient demand from other sectors leads investors to remain bullish on China's warehouse sector; they have committed more capital to invest in it. GLP's recent acquisition of Beijing International Logistics Centre from Forterra for RMB 424 million attracted much attention," said Sharon Luo, Head of Industrial for JLL Beijing.

Over the next 12 months, 265,000 sqm of new supply is scheduled to complete, over half of will be in new submarkets. The new projects present tenants with options to upgrade from legacy warehouses. Due to sustained demand from 3PLs, automotive and pharmaceuticals, we expect to see rental growth accelerate modestly.


Foreign institutional investors are turning to value-add investment opportunities to gain exposure to the Beijing market. The supply of investment stock was limited as landlords have strong holding power because of solid income streams and the high potential for rent reversion. Foreign institutional investors are actively looking for high quality assets, and are now more willing to explore options beyond the typical core and core-plus assets given that Beijing remains supply-restricted in terms of investment stock. Gaw Capital's acquisition of the mixed-use Pacific Century Place for USD 928 million in April 2014 highlights the strong appetite for Beijing's commercial real estate. Significant vacancy in the retail podium suggests that Gaw Capital aims to implement an active asset enhancement strategy after the acquisition. "Due to the tight market, any good quality investment asset in Beijing will be chased by domestic and foreign investors – of the latter, foreign institutions are showing more of a willingness to pursue value-add opportunities, said Eric Pang, Head of Capital Markets for JLL North China. "Although the macro picture remains uncertain, Beijing commercial real estate assets are still attractive to investors because of their strong rental profile and improved transparency conditions; however, the owners are reluctant as always to sell since they continue to enjoy strong holding power."

Non-bonded warehouses continued to draw attention from both foreign and domestic crowds. Forterra sold Treasury Beijing International at Beijing Airport Logistics Park to GLP for RMB 424 million. Several domestic and international institutional investors have recently committed more capital to invest in China's nascent modern warehouse market and the sale of this high-quality two-story asset attracted a plethora of bids leading to record pricing and compression of the market yield.

Investment fundamentals remain unchanged from a year ago. Large-scale transactions totalled RMB 6.7 billion in 2Q14 and comprised two large en bloc transactions and several large strata title sales. The year-to-date large-scale transaction volume increased to RMB 15.8 billion, essentially flat compared to 1H13, when the market registered RMB 15.9 billion.