Skip Ribbon Commands
Skip to main content

News Release


Finance demand strong despite recent stock market volatility; Office investor-interest still high after RMB depreciation

JLL Beijing’s 3Q15 Property Review

BEIJING: October 15, 2015 – JLL's 3Q15 property review revealed the following:

  • Finance demand still strong after stock market swings
  • CBD demand highly diversified
  • International capital boasts forward-looking office market
  • Investor-interest in Office remains high after RMB depreciation
  • Three new retail projects off to strong start despite weak climate
  • Manufacturing and 3PL firms still dominate Industrial demand  
  • Positive policy environment spurs residential sales momentum


Despite slowing economic growth and recent volatility in the stock market, finance firms remained highly active in the quarter. Domestic finance and IT firms were the busiest, accounting for a majority of the net take-up. However, absorption from these companies could have been greater in the quarter; some wanting to expand were challenged by the supply-constrained market. Overall leasing activity, meanwhile, continued to slow in the quarter as the majority of companies took a more cautionary approach to the slower pace of the market. "Domestic companies are still growing, but more prudently," said Eric Hirsch, Head of Markets for North China at JLL in Beijing. "However, we're still seeing a general appetite for growth."

Demand in the CBD is highly diversified. Without any one industry significantly dominating the CBD, the submarket is protected from industry-specific changes in demand, such as stock market volatility. While the finance sector accounts for more than a third of the space in the overall market as the biggest occupier-group, this is balanced by significant demand from three other pillar industries of the Beijing market: professional services, IT, and manufacturing, which when combined with finance, make up 70% of the entire market. Finance Street is the only submarket dominated by the financial sector firms due to its close proximity to regulators. The largest occupier type in Zhongguancun is IT, but the percentage is held back by high Grade A rents and plentiful business park alternatives. "Beijing has the unique advantage of not being overly reliant on any single industry in particular," added Hirsch. "This diversification is helpful in driving demand and especially valuable during periods of slower growth and economic uncertainty."

As an international city, Beijing boasts a forward-looking office market capable of supporting both foreign and domestic demand. Foreign companies account for nearly half (47%) of the market's Grade A office tenants. Finance Street and Zhongguancun are the most localized submarkets, while Third Embassy Area has the largest proportion of international tenants; the CBD comprises more foreign occupiers than local occupiers. "The variety of companies from around the world which contribute to the Beijing skyline speaks to the potential for doing business in the capital for both today and tomorrow," said Hirsch. "The opportunities here are endless."


Despite the recent depreciation of the RMB, investors remain highly interested in Beijing. However, foreign investors have taken on a wait-and-see approach since the depreciation, unwilling to make any aggressive plays before they can fully digest how the move will ultimately influence their return on investments. Domestic investors, meanwhile, continue to be active in searching the market for value-add opportunities. "Foreign fund managers in particular have temporarily put the brakes on, not wanting to rush into any deals given the new lay of the land," said Kevin Qin, Head of Capital Markets for North China at JLL in Beijing. "While not much has changed for domestic investors, who remain highly interested in Beijing at this time, the continued lack of tradable assets on the market is limiting the number of opportune deals."

The present condition and future outlook of the Beijing office market continue to make it highly attractive to both domestic and foreign investors. The rising rental trend continued in the quarter, with rents increasing across most submarkets in the tight market. Pent-up demand, meanwhile, is expected to get some relief from future supply. For example, in the CBD, where absorption and expansion have been muted due to a lack of leasable space, the Core Expansion project is expected to grow the market with a series of quality, new buildings. "The future of the office market in Beijing is bright," added Qin. "Investors are looking at the big picture ahead – not only do new and exciting prospects exist in mature submarkets on the horizon, but also in emerging ones like Tongzhou; recently announced plans to build the city out eastward here are only expected to bring more opportunities to the market."



Three new projects leveraged their advantageous locations to get off to a strong start in the quarter despite the weak retail climate. Core project Jinbao Phase II opened with a commitment rate of 90% in the heart of Wangfujing shopping district, while Aeon Beijing Fengtai entered the Urban market just shy of full occupancy at a commitment rate of 99% – carving out new territory for modern retail in the city's southwestern pocket. Gem Mall, meanwhile, opened with a 90% commitment rate in the Suburban market, continuing the supply boom beyond the Fifth Ring Road. The future Suburban supply pipeline marks a turning point at the end of the year, when it will no longer be outdone by the future supply of Urban projects. "The retail landscape is shifting," said Alice Law, Head of Retail for North China at JLL in Beijing. "Though the Urban market will still be growing, we expect to see growth in the Suburban really start to take off from next year."

A new policy prohibiting Urban malls from housing new F&B tenants in the basement or within areas smaller than 60 sqm is expected to force landlords to revisit tenant strategies ahead. The rule aimed at upgrading the overall retail market was introduced in the quarter and its effects are likely to come to the market from next quarter. "It is highly likely that landlords will shuffle their floor plans around in response to the new rule," added Law. "As a result, we may also see some F&B retailers change their plans in the short-term, but beyond that, there is nothing at present to indicate that the policy will weigh on demand for this popular category in any significant way."


Manufacturing and third party logistics firms remained the main demand-drivers, but limited leasable space in the market continued to restrain leasing activity. Manufacturing firms were busiest in the quarter, expanding in Daxing and emerging Pinggu. No new supply entered while the only project scheduled to open by year-end was delayed until 2016. "Under the stable demand, vacancy continued to slide in the supply-constrained market, further propping up rents," said Sharon Luo, Head of Industrial at JLL. "The current condition is expected to enable rental appreciation to continue through to year-end."

Investors were still interested in logistics properties, but with so few properties on the market, the transaction volume continued to be restricted. More developers were looking for second-hand land after no new warehouse land supply has come to the market in more than a year. "Considering that demand from manufacturing, 3PLs, small e-commerce firms, and brick-and-mortar retailers should continue to be stable ahead, developers are keen on developing new opportunities in the undersupplied market," added Luo.


High-end Residential

The positive policy environment spurred sales momentum in the quarter. The sales volume for the high-end residential market continued to expand, thanks to the further loosening of credit policies. A sum of 635 luxury apartment units sold in the quarter, up 3.9% q-o-q; meanwhile, 299 high-end villas sold, up 69.9% q-o-q. High-end residential leasing demand, meanwhile, remained soft. Many serviced apartments attempted to widen their tenant base by attracting more domestic tenants or by signing more short-term leases. Net absorption for serviced apartments registered 38 units.

The sales volume is set to remain strong until year-end. Although restrictions on foreign house purchases in China were recently lifted, the relaxation in policy is not expected to move the needle. However, reverting to the more lenient rules will allow foreign end-users to support the current strength in demand. Still, a run-up in housing prices is not expected given that developers still face intense competition and pressure from year-end sales targets. Meanwhile, rents for serviced apartments are unlikely to rise considering that the end of the year is a slow season for the leasing market.