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News Release


Office vacancy dips while overall rents inch up; retail records its first negative take-up in seven years

According to JLL Beijing’s 3Q14 Property Review

BEIJING, October 21, 2014 – JLL's 3Q14 property review revealed the following:

  • Office vacancy tightens to 2.5% as overall rents rise by 1.6%
  • Two new retail projects opened in the suburban market and were well-received
  • Weak sentiment in the mass residential market spilled over to the high-end market, where many buyers took on a wait-and-see approach
  • The logistics market recorded its highest quarterly net absorption on record
  • Larger tenants are increasingly exploring investment opportunities to secure bigger spaces

Prime Office

CBD rents trended upward for the second consecutive quarter, increasing 2.1% q-o-q on a like-for-like basis. Landlords again expressed confidence in the CBD and pointed to enquires from various tenant types as evidence that market conditions remained favourable. While CBD vacancy rates are higher than those for other submarkets, much of the available space is under negotiation. East Chang'an, East Second Ring Road and Zhongguancun registered rental growth rates from 2.6% to 3.3% q-o-q, while Finance Street and Third Embassy were flat, limiting the overall market increase to 1.6% q-o-q.

Strong demand drove considerable net take-up, pushing overall vacancy down 1.1 percentage points q-o-q to 2.5%. Tenants from a broad range of industries drove demand for CBD office space, consistent with the submarket's historical demand profile. For example, Guo Tai Investment took 2,500 sqm in Yintai Centre, while another local investment company leased a similar-sized space at Fortune Financial Center (FFC). The market also saw a sizeable increase in demand from the legal services industry, with international law firm Cleary Gottlieb letting 1,000 sqm at FFC. The most recent completion in the Beijing office market, FFC continues to make leasing progress, albeit at a slower pace.

Supply is expected to remain limited over the next 12 months, especially in core submarkets. Interest in emerging submarkets is growing due to the run-up in rents over the past several years. However, infrastructure and amenities in most of these areas are still developing to meet tenants' preferences. While expansion momentum may vary widely across occupier segments, net absorption should remain strong. Strong enquiries observed from the banking and professional services industries will likely result in a large number of transactions from these tenant types. Due to sustained demand and limited supply, we expect to see the low vacancy environment characteristic of core submarkets to persist. CBD landlords are likely to retain bargaining power and we expect to see continued rental growth in the CBD. "Given that rising rents in Beijing show no signs of reversing in the near future, companies are re-evaluating their situation in the city and are increasingly willing to consider cost-saving locations outside of core areas," said Eric Hirsch, Head of Markets, Beijing, at JLL. "It's only a matter of time before more firms start to move farther out as Beijing continues to grow and these areas become more accessible and convenient for commuters."

Prime Retail

Negative net absorption was recorded for the first time in seven years due to higher vacancy rates resulting from landlords' ongoing tenant adjustments, made in a bid to stay relevant in a competitive market. For example, the food court at Shin Kong Place was removed to make way for new restaurants. At Macau Centre, a high-end restaurant and two jewellery stores were closed, in line with the recent decline of high-end expenditure in Beijing. "We expect occupancy levels in the market to bounce back by year-end as landlords shuffle their new and improved tenants into place," said Alice Law, Head of Retail, North China, at JLL. "Malls are constantly upping their game in the face of increasing competition, which is providing consumers with a more varied and sophisticated shopping experience."

Two new projects opened in the suburban market and were well-received. In Tongzhou, ARA Group's Jingtong Roosevelt (67,000 sqm GFA) held a soft-opening, showcasing a strong offering of children's'-related clothing and accessories. BHG Lippo Mall (80,000 sqm), a partnership between Beijing Hualian and Indonesia's Lippo Group, opened in Yizhuang in southeast Beijing. Both projects are the most advanced retail properties in their respective areas and introduced several high-profile new entrants to their communities, such as the first H&M and Starbucks in Tongzhou, and the first H&M in Yizhuang. Both properties opened with high pre-commitment rates. Meanwhile, two more department stores – Ito Yokado and Sunshine Store – closed in 3Q14, continuing the trend of previous quarters as department stores experience poor performance.

Casual dining concepts continue to take off, particularly in the mid-market. Jin Ding Xuan, a casual dining chain, and Sea Hood, a restaurant specializing in seafood, were among the F&B brands that expanded their presence at shopping centres. Dessert and refreshment brands were especially eager to open stores in shopping malls. Key examples included Dian Dian Yi Pin and Ice Monster, recent arrivals from Hong Kong and Taiwan, respectively. Beauty stores, especially hair salons, opened numerous new locations, reflecting the trend towards a greater emphasis on services tenants to drive foot traffic.

Prime Residential

A weak mass market sentiment affected the high-end apartment market as many buyers took on a wait-and-see approach due to the uncertainty over the future direction of the market. The sales volume for high-end apartments reached only 495 units in 3Q14, down 16.1% q-o-q. However, several projects were successful in attracting buyers, such as Haidian district's Riverside Palace and Chaoyang district's Zhenyuan in Wangjing, which still managed to record strong sales, each selling a respective 124 units and 100 units. Two high-end apartment projects, which received their pre-sales certification in 3Q14, meanwhile, added another 590 apartment units to the market. In contrast to high-end apartments, demand for high-end villa projects was robust; 294 units were transacted in 3Q14, up 9.3% q-o-q. The strong villa sales were driven by relatively low prices and growing demand for second homes in Beijing's outlying areas.

Prices were lowered at several high-end apartment projects in an attempt to boost sales volume. Given weak demand in the market, several landlords modestly lowered their asking prices. Only one high-priced luxury apartment was sold, while the transaction volume for lower-priced villas was relatively high. The average sales price for high-end apartments was 9.4% lower this quarter than last, while the average sales price for villas was 18.1% lower in 3Q14 than in 2Q14. This was a result of a high sales concentration of lower-priced developments in the transaction volume. Continued weak sentiment in the housing market is expected to further shrink sales volumes for the high-end market, causing prices to decline further. Once homebuyers believe prices are near a trough, the sales volume will start to rebound, which should help stabilise prices.


The non-bonded logistics market recorded 164,000 sqm of net take-up in 3Q14, the largest quarterly figure on record. Net absorption came mainly from two newly completed projects in 3Q14. Almost immediately after completion, Yupei Beijing Logistics Park and China Resources Phase II achieved high commitment rates of 90% and 100%, respectively. This is impressive considering other projects generally take several quarters to achieve the same result. Benefiting from both online and brick-and-mortar retailer demand, third-party logistics (3PL) firms were the most active in the leasing market in 3Q14. Another large space was leased to a multinational electric appliance company, which took half of the available space at Yuehai International Logistics in Tongzhou Logistics Park. However, the electric appliance company outsources its logistics management to the warehouse operator, following a recent trend. The pharmaceutical industry continued to lease warehouse space. For example, a pharmaceutical company expanded its existing footprint by 5,500 sqm at a Liangxiang project. Beyond Beijing's borders, relatively abundant space and lower rents have made outlying areas a strategic location for companies to operate their regional distribution centres from. In a renewal and expansion deal, sports retailer Decathlon leased an additional 57,000 sqm. The market has tipped in favour of tenants due to the available supply just outside of Beijing, resulting in flat rental growth q-o-q. Tenants are giving consideration to these outlying areas because they are more affordable. However, Beijing remains the first choice for tenants who can afford the higher costs.


Rent increases in recent years have complicated large tenants' efforts to control costs and they are increasingly exploring investment opportunities as a result. Occupiers, including foreign corporations, have shown strong interest in acquiring self-use space within Beijing's core CBD expansion area, where a number of high profile high-rise projects are currently taking shape. The area offers unparalleled centrality as well as the opportunity for signage rights which provide visibility across a large portion of east Beijing; this is also a boost for corporations seeking strong branding on the Beijing skyline. In addition, owner occupiers are increasingly looking at en bloc purchase opportunities in Beijing's emerging decentralized office clusters, where a major transaction of this type is expected by year-end. Limited new supply in recent years has made large blocks of available space increasingly scarce within the core areas. "Over the next 12-18 months, large core submarket office occupiers are likely to drive investment activity in Beijing. These occupiers are increasingly turning to forward purchase routes in order to secure large blocks of space for their future operations, and we expect to see more multi-ownership structured deals," said Eric Pang, Head of Capital Markets for JLL North China. Areas of Beijing with the largest future supply of investment grade office schemes include Lize, Wangjing and the CBD core expansion.

Although foreign and domestic institutional investors remain interested in the Beijing office market, the number of transactions involving these parties continues to be limited. Net yields are below interest rates, contributing to frequent mismatches in buyer and seller pricing expectations. Three en bloc sales and some strata title sales comprised a large-scale transaction volume of RMB 1.6 billion during the quarter. The year-to-date large-scale transaction volume increased to just RMB 11 billion, down 55.7% from the same period last year.