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News Release


Mixed office market signals cause landlords to act cautiously; further housing policy-loosening prompts buyers to return to the market

JLL Beijing’s 1Q16 Property Review

​​​18 April

JLL Beijing’s 1Q16 Property Review reveals the following: 

  • Domestic and foreign demand soften in the office market
  • Leasing progress at newer Grade A buildings in strong locations holds up well
  • One new suburban retail project opened with strong commitment in the quarter  
  • New stimulus measures trigger a significant rebound in housing sales  
  • Large 3PLs and e-commerce firms  remain the dominant source of industrial demand 
  • Investment deals were limited to Grade B buildings in emerging Wangjing



Grade A net absorption was high for this traditional low period of the year, registering 48,300 sqm – up an impressive 253% y-o-y. However, the relatively large take-up was mainly due to the opening of a build-to-suit project in Finance Street, which was fully leased by Asian Infrastructure Investment Bank. Meanwhile, domestic finance remained a key source of demand in the quarter, but leasing activity was limited as both domestic and foreign demand softened across industries. Still, Grade A vacancy remained flat q-o-q at 2.6%. In line with market trends, foreign firms acted more conservatively than their domestic peers: a small number of them downsized and at least one bank exited a large unit in Finance Street after shutting its China offices. 

Despite the softer demand, leasing progress at newer, quality buildings in strong locations continued to hold up well in the quarter. Three Grade A buildings completed a year ago in Wangjing, Finance Street, and Zhongguancun reached a minimum of 90% commitment by the end of the quarter. “These buildings have done well to cater to tenants seeking good, affordable options outside of the core areas,” said Eric Hirsch, Head of Markets for JLL in Beijing.

Still, mixed signals under the current market led the pattern of slow rental growth to continue. Grade A rents grew by just 0.9% q-o-q to RMB 373 per sqm per month, as most landlords refrained from raising rents. Some landlords, however, were able to exploit opportunities to replace lower-rent tenants, which resulted in rising passing rents. “Until we are able to get a clearer picture on just how much demand is softening and to what extent there is vacancy risk in the market, landlords are likely to continue acting cautiously moving forward,” added Hirsch. “The situation is also leading landlords to increasingly scrutinise the creditworthiness of wealth management and P2P firms in order to control their exposure to early termination risk, giving preferences to operations backed by large-scale SOEs.

“Yet while landlords hold low rental expectations at this time, looking forward, there are still several factors at play, including the IT boom in Wangjing, policy support for specific industries, and restrictions on future development within the Fifth Ring Road, which bode well for modest rental growth in key areas such as the CBD,” he said. “Tight vacancy and limited leasable space in core areas will also remain strong supporters of rental growth.”


Demand was stable, with just pocket vacancies absorbed in the quarter. As a result, net absorption in both the Core and Urban markets was minimal. F&B remained the main demand-driver, but a significant number of jewellery chains opened or committed to space in key locations at major malls in the quarter. “While it is currently premature to say whether these openings indicate a trend as landlords continue to chase high-rent tenants amid the luxury downturn, ground floor jewellery expansion will be a segment to watch as a potentially important source of demand ahead,” said Alice Law, Head of Retail for JLL in Beijing. “Meanwhile, demand for mid-market F&B and the children’s sector is expected to remain strong.”

This strength in demand was reiterated with the opening of BHG Mall Pinggu in the quarter, which entered the market with 90% commitment. More than a third of the space at the 60,000 sqm-project was committed by F&B tenants, while a significant portion of the mall was taken up by kids’ brands. Suburban demand momentum remained robust; newer, larger projects continued to fill up, pushing vacancy down to 5.8%. Meanwhile, Core and Urban markets maintained their low-vacancy environment as vacancies in both markets were flat q-o-q. 

Rents maintained a slow pace of growth, with the Urban market growing by just 1.1% q-o-q to RMB 881 per sqm per month, while the Core market grew by 1.0% q-o-q to RMB 1,372 per sqm per month.* The rental growth premium enjoyed by Core projects is fading as many of these properties approach rental-ceilings, however. Meanwhile, the Suburban market continues to expand quickly. “With close to 1 million sqm of new Suburban retail supply set to enter the market by the end of this year, landlords of projects that tap into underdeveloped retail locations on the outer edges of the city could have the most to gain,” added Law. “The growing disposable incomes of local residents in these areas also offer huge demand potential.”​​


The sales market was spurred by a further loosening in housing policies, as new stimulus measures prompted buyers to return to the market. An impressive 464 luxury apartments and 262 high-end villas were transacted in 1Q16, traditionally a low sales season due to the Chinese New Year. The figures recorded significant respective increases of 20.2% y-o-y and 147.2% y-o-y. Meanwhile, given that high-end residential leasing demand is closely linked to the performance of the office market, softer office demand in the quarter, especially from MNCs, restrained the number of high-end residential leasing transactions. 

Capital values increased rapidly following the rebound in the transaction volume. As a result, primary capital values for luxury apartments and high-end villas grew 2.7% q-o-q and 5.7% q-o-q, to RMB 65,120 per sqm and RMB 46,049 per sqm, respectively. Despite weak demand, some apartment landlords were able to increase rents slightly as no new supply entered the market for a sixth straight quarter. Luxury apartment rents inched up 0.4% q-o-q to RMB 121 per sqm per month, while serviced apartment rents were flat. However, high-end villa rents continued to decline under the shrinking demand.

Given that cities such as Shanghai and Shenzhen have already tightened housing market regulations after the recent rally in prices, the Beijing government is not expected to further relax policy. Considering the sales volume-rebound in the first quarter of the year, total sales for 2016 are expected to increase slightly from 2015. The expected boost in the sales volume is also expected to improve developers’ confidence in the market, which may lead them to increase prices going forward. However, the large amount of high-end residential inventory, especially in the luxury apartment market, is expected to drag on the rate of price appreciation.


Large 3PLs and e-commerce firms continued to drive demand, accounting for most of the net take-up due to their large-size requirements. The only new project in the quarter, Prologis, was fully committed by the logistics arm of a domestic e-commerce giant, driving net absorption to 114,550 sqm, the highest quarterly figure in the last six months. However, unlike recent years, some small spaces were vacant in mature submarkets, such as Beijing Airport Logistics Park and Tongzhou Logistics Park, indicating weaker demand in the quarter. However, these small spaces remain popular in the market and are likely to be quickly absorbed. Meanwhile, the tight-vacancy environment was further compressed by the strong commitment at Prologis. Vacancy dropped 1.0 percentage point q-o-q to 2.0%.

Still, during the quarter, the small vacant spaces contributed to restrained rental growth. These vacancies, along with the weaker demand, made some landlords wary of raising rents. Therefore, chain-linked rents increased marginally by just 0.2% q-o-q to RMB 1.12 per sqm per day, recording the lowest quarterly growth rate in the past year. At the same time, while demand is not as strong as before, leasing managers report that several large-size spatial requirements from 3PLs, e-commerce firms, and manufacturing-related companies remain unfilled. In addition, upgrade demand from e-commerce retailers is also expected to help push up overall rents slightly.


There were no Grade A en bloc sales in the quarter, after high pricing expectations continued to limit deals in core districts. However, there were a few Grade B en bloc sales in Wangjing. The emerging submarket has grown quickly in recent years, and the area is increasingly considered by tenants seeking lower-cost rental options. “The IT boom in this area also makes this location attractive to landlords, especially given that there are limited tradable assets within core areas,” said Kevin Qin, Head of Capital Markets for JLL in Beijing. 

Despite the lack of properties for sale in the market, investors remain highly interested in Grade A buildings. Though opportunities in core areas continue to attract the most interest, the scarcity of tradable assets in these locations have forced some investors to look at projects in emerging areas such as Shangdi, which boasts a strong IT presence, and Tongzhou, the government-led development area. “While key areas such as the CBD remain the preferred choice for investors, there are very few choices here, and that, combined with landlords’ high pricing expectations, remain a hindrance to transactions for these high-profile areas,” added Qin. “The tight supply is likely to drive a greater number of investors to contemplate outer locations in the future, especially as the Beijing office market continues to grow and expand.” 

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About JLL

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 230 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $56.4 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit

JLL has over 50 years of experience in Asia Pacific, with over 32,000 employees operating in 83 offices in 16 countries across the region. The firm was named ‘Best International Property Consultancy’ and ‘Best Property Consultancy Asia Pacific’ at the International Property Awards Final 2015 as well as number one real estate advisor in Asia at the 2015 Euromoney Real Estate Awards.  

In Greater China, the firm was named ‘Best Property Consultancy in China’ at the International Property Awards Asia Pacific 2015, and has more than 2,200 professionals and 14,000 on-site staff providing quality real estate advice and services in over 80 cities across the country.​​