Skip Ribbon Commands
Skip to main content

News Release


Beijing office market boasts among world’s lowest vacancy; undersupplied logistics market to support modest rental growth

According to JLL Beijing’s 1Q15 Property Review

BEIJING, April 14, 2015 – JLL's 1Q15 property review revealed the following:

  • POSCO Centre completes, marking the first Grade A office project of the year to enter the market
  • Limited leasable space in the logistics market restrains transaction volume
  • F&B chains continue to dominate the retail market
  • First-ever stabilised mall transaction in Beijing recorded
  • Residential mass market and high-end market record weak sales

Prime Office

Despite softer demand than usual, Beijing's office market continued to boast one of the world's lowest vacancy rates at 3.6%. With global average vacancy at 12.9%, the Beijing market is a considerably more landlord-favourable market than all major global centres including New York and London. Given the tight market in Beijing, landlords remained optimistic, especially since most spaces that became available leased out quickly. The largest leases were signed by electronics, internet, and finance-related firms. Automotive and auto-financing firms were also active.

POSCO Centre completes, marking the first Grade A project of the year to enter and help relieve pent-up demand in the market. The project added 88,000 sqm of office stock to Wangjing, also representing the first new Grade A office supply to enter Beijing's market since 4Q13. The project was half-committed by end-1Q15, underscoring strong demand for space in the low-cost, emerging submarket which provides a convenient, alternative location for large occupiers.

The tight market since 2009 has enabled Beijing's office rents to accelerate quickly, pushing its rental cycle to decouple from the global trend. Unlike Hong Kong and Shanghai, demand is driven by growing Chinese multinationals as they continue global expansion of their businesses, with decision-making power concentrated in Beijing. This results in a rental cycle pattern that is very different from the foreign MNC-dependent markets elsewhere in Asia. Driven by the CBD, rental growth is set to speed up further in the near term. Although four new projects are scheduled to add some 362,500 sqm of office stock to the market by end-2015, a large portion of this space has already been set aside for self-use or pre-leased, such as New Times Square and Raycom Infotech Park Tower B. "Therefore, landlords continue to raise rents and are being more selective; many will use this position of privilege to focus on securing stable, quality tenants," said Eric Hirsch, Head of Markets for JLL North China. "We expect established companies with proven pedigree to be most compelling for landlords."

Prime Industrial

Limited leasable space restrained the transaction volume. Third party logistics (3PL) companies were the most active, with two such companies committing to 20% of the space at the newly completed GLP Park Pinggu Phase I, located in Beijing's suburbs. Meanwhile, the tight market constrained warehouse expansion plans for some bricks-and-mortar retailers. Demand from e-commerce companies was mixed, with some continuing to consolidate warehouse space at regional distribution centres in non-core areas, while others were eager to lease space closer to the centre of Beijing.

Overall vacancy rose to 6.9% after the completion of one new project. Due to its distant location in Mafang town, Pinggu district, some 50 kilometres from the centre of Beijing, the new 73,000 sqm-GLP Pinggu Park Phase I managed a commitment rate of just 30%. Bailiwei Phase III in Daxing, completed in 4Q14, failed to make significant leasing progress in 1Q15. Subsequently, high vacancy at this project and the newly built GLP Pinggu Park Phase I pushed overall vacancy up 2.6 ppts q-o-q to 6.9%.

The undersupplied market is projected to support modest rental growth. Prologis DC 2 is the only project expected to enter the market by end-2015. Considering the warehouse's winning location at Beijing Airport Logistics Park, and the developer's strong reputation, the 100,000 sqm-project should lease up quickly, but is expected to cause a temporary spike in market vacancy. "3PL firms, bricks-and-mortar retailers, and manufacturing companies are projected to continue serving as the main demand drivers," said Sharon Luo, Head of Industrial for JLL in Beijing. "Cost-sensitive tenants will pursue lower rents at warehouses near Beijing, while tenants with higher rental affordability will still seek space closer to the city centre, which will support rental growth."

Prime Retail

F&B chains continued to dominate the market. Mid-market restaurant chains remained the most popular; Kro's Nest entered Xin'ao Shopping Center, Grandma's Home opened at Capita Crystal, and South Beauty opened at Jingtong Roosevelt. Meanwhile, amid slowing luxury growth, Louis Vuitton upgraded its store at China World Mall to a flagship, quintupling its space by expanding to some 4,000 sqm over three floors. Meissen Couture also opened its first China flagship store at China Central Mall. Armani Collezioni, Coach, and Delvaux also opened new stores in Beijing.

Overall vacancy was flat despite three new project openings. Spot on WFJ, a small, vertical mall project (38,000 sqm), opened on Wangfujing's pedestrian strip with only about a third of its space committed. However, strong occupancy at other Core projects led to a modest slide in Core vacancy for a second consecutive quarter to 3.9%. Large-scale mall project COFCO Shine Hills, an open-air lifestyle centre with a relatively high-end positioning, entered the Suburban market with 40% vacancy. Greenland Being Funny Fangshan also opened in the suburbs, but with just 10% vacancy after anchor tenants SCF movie theatre and Carrefour supermarket delayed openings. 

Ten more projects slated to open this year and add 1 million-plus sqm of retail stock. Two-thirds of these projects are scheduled to enter the market by mid-year, further extending the supply boom that started in late 2014 and contains a larger number of suburban projects. "Sales growth at major shopping centres will be moderate as such properties face growing competition from nearby overseas shopping (in Japan and South Korea), online, suburban development, and outlet malls," said Steven McCord, China Retail Research Lead for JLL in Beijing. "Favourable exchange rates, concerns about product quality and selection, and competitive pricing are drawing price-sensitive consumers en masse to nearby Northeast Asian countries for major shopping trips, and affecting the business of major CBD shopping centres in Beijing."


The first-ever stabilised mall transaction in Beijing was recorded. EC Mall in Zhongguancun was sold fully occupied to Hong Kong-listed Link REIT for RMB 2.5 billion, a major break away from previous retail deals which have generally been transacted at the pre-construction or early stage of development. The deal also marks the first purchase in Beijing for Link REIT. "The high transaction price is further indicative of the potential revenue stream expected of the mall, regarded as one of the submarket's top projects," said Kevin Qin, Head of Capital Markets for JLL North China. "The property is well-positioned to outperform, especially given the temporary closure of nearby competitor Zhongguancun Plaza."

High-End Residential

Both the mass market and high-end market recorded very weak sales. Despite increasing 55% y-o-y, the mass market sales volume decreased by 30% in the first two months of the year from the previous quarter, due to limited new supply and the slower Chinese New Year period. It was a similar situation for the high-end market, which transacted just 214 high-end apartment units and 37 high-end villa units over the same period. However, both transaction volumes are expected to rebound quickly from March, given that the central bank continues to loosen the credit market and favour policy supporting housing sales as indicated from the Two Sessions.

Capital values declined slightly due to the low transaction volume. Primary capital values for luxury apartments and high-end villas decreased 0.4% in the first two months of the year from the previous quarter, and 4.6% over the same period. The slower pace of sales prompted some developers to lure buyers with discounts.

Serious competition is set to weigh on capital value. The loosening policy environment is expected to release some pent-up demand, but high prices are expected to restrain the sales volume. Many new projects are also expected to enter the market in 2015. Therefore, capital values will still face headwinds in the coming months, and suppress price increases. Meanwhile, demand in the leasing market is unexpected to change much. New supply expected for end-2015 is projected to push up overall vacancy. Rents are expected to see modest rental growth, but also more volatility as operators adjust rents according to occupancy levels and market conditions.