With only 113 days before the 2008 Beijing Olympic Games begin, Jones Lang LaSalle, the professional services firm with a specialization in real estate, is pleased to release its latest white paper, 'Accelerating Towards a New Beijing'. The paper examines how the Olympic Games is only one of the drivers in the transformation of Beijing and explore the lasting legacy that the event will have on the city. 

Since Beijing won the Olympic Games bid in 2001, approximately USD 41 billion has been budgeted for Beijing's transformation and a substantial portion of this has been invested in improving the environment and expanding the city's infrastructure.  The aim of these investments is to change Beijing permanently and positively and future proof the city for continued economic and population growth.  David Hand, Managing Director for Jones Lang LaSalle Beijing said, "Beijing today is almost unrecognisable when compared to the city only a few years ago.  The combination of government and private sector development and investment has transformed the urban environment.  As a result, Beijing has raced-up the rankings of world cities within which to live, visit or establish a business.  The legacy of the Olympics is likely to be a key contributor to Beijing's success for the next decade and beyond."

Some sources have raised the possibility of the Games precipitating a downturn in the Beijing real estate market.  The reality is, however, that there is little direct correlation between the event and the key demand drivers that underpin Beijing's real estate growth.  The lasting impacts on the market will be positive as infrastructure expansion creates new commercial areas and supports the development of suburban residential hubs.  Additionally, efforts to improve the environment are making Beijing a more comfortable place to live and conduct business. 

Ben Christensen, Head of Research for Jones Lang LaSalle Beijing added, "the government, in their effort to improve Beijing's development landscape, facilitated the completion of a large amount of new, high quality space in key commercial areas through investment and construction approvals.  This has led to a substantial expansion in the high-end retail, office and residential sectors which is a very positive development for the city.  Almost inevitably, however, this will likely put slight downward pressure on rents in the period directly following the Games.  Demand drivers supporting this development will continue to grow: Beijing is an increasingly critical location for office occupiers as they expand their presence in China, the demographics and consumer sentiment supporting the rapid development of the luxury retail market are expected to continue improving, and residential projects will likely continue to enjoy strong demand from both end-users and investors.  These demand factors have little direct correlation with the Games and are expected to underpin strong absorption across all sectors of the Beijing property market in the medium to long term."

In 2007 and 2008, Beijing's high-end property market is undergoing a dramatic expansion as total stock in the office, retail and residential markets is anticipated to grow by 52%, 89% and 58%, respectively.  It is important to keep in mind that this expansion is building on a relatively small base at the top end of the market and that the figures represent the high end of the market as opposed to the mass market.  The increase is, nonetheless, substantial and is anticipated to lead to temporary oversupply conditions in the months following the Games.  This impact will be short term as anticipated strong demand will likely absorb residual vacant space in 2010 and 2011 when less new supply is expected.  Importantly, from a long-term perspective, during this ongoing increase in property supply, several key themes have emerged:

Higher Quality 
Prior to 2007, Beijing suffered from a shortage of international standard office and retail space so some large office space occupiers and retailers were forced to adjust their Beijing expansion plans in response. 2007 and 2008 are bringing new options and new opportunities for these occupiers with the completion of 10 new Grade A office buildings and entry of 11 new wholly-owned shopping centres.  Tenants in need of expansion space now have high quality options to choose from and international retailers are expanding rapidly, with some brands, such as Zara, expanding into multiple new locations in less than one year's time. 

Unexpectedly Strong Demand 
In response to the influx of new supply that entered the Beijing retail and office markets in 2007, it was anticipated that vacancy rates in these sectors would increase and that rents would consequently fall.  Vacancy rates did increase slightly, but in fact, in the office market at end-2007, average rental had grown by 17.8% y-o-y.  Increased quality, as discussed above, is one reason for this, and an additional important reason is strong, pent-up demand.  Some large Multi National Corporation (MNC) office occupiers had to adjust their expansion plans prior to 2007 due to a lack of suitable space.  With the completion of over 1.3 million sqm of new office space in 2007, these occupiers now have a variety of options that present opportunities for them to relocate, expand and upgrade – enabling continued growth in Beijing.  Retailers are also actively signing pre-leasing deals in upcoming new developments to ensure that they have a strong presence in Beijing's promising market going forward.  This type of expansion was likely an objective prior to 2007, but it has only been in these two years that there have been enough suitable venues to fully facilitate such growth.  

1.3 Billion Consumers 
The 2008 Olympic Games represents an opportunity for MNCs and luxury retailers to access China's population on an unparalleled scale.  TV audiences for the Games are expected to reach all time highs and more than 50 Chinese and foreign companies have signed agreements with the Beijing Olympic Organising Committee (BOCOG) to act as sponsors, partners or suppliers.  Some firms paid up to USD 200 million dollars for this opportunity.   The need to have an established platform from which to launch these marketing campaigns has accelerated the China entry process for some MNCs.  Additionally, luxury retailers and consumer products companies are eager to use this event as means to introduce China's huge consumer base to their products and to their culture. 

The expansion of Beijing's transportation infrastructure is a change that will substantially impact the city's future development.  These impacts are broad and will also be very powerful drivers behind property growth in Beijing.   Key implications include:

• Foot traffic and connectivity for areas surrounding new metro stations will increase dramatically, enhancing access to new retail developments and driving up property and rental values
• Expanding the public transportation infrastructure into more suburban areas facilitates the development of peripheral residential hubs.  These are important locations for affordable housing and are a key part of Beijing's efforts to decrease population density in the urban core.
• New subway lines running through established commercial areas will increase property values for adjacent developments and also enable more convenient commuting for workers.  In turn, this will decrease future reliance on private automobiles, aiding efforts to reduce pollution in Beijing.

The Olympic Games has a clear "green" emphasis and this is increasing awareness surrounding the importance of a healthy environment.  Beijing's first sustainable office building, the Century Prosper Centre, was completed in 4Q07 and another, World Financial Centre, will follow in July 2008.  Both projects are expected to be certified by the United States Green Building Council under their LEED rating system.   Residential communities in the Capital are also beginning to integrate sustainability features, although this trend will struggle to gather further momentum until consumer awareness and demand increase.   Christensen added, "Importantly, for individual residential buyers, the strongest selling point for sustainable buildings is likely to be the positive impacts of a healthier internal environment as opposed to energy savings.  Should utility costs increase in the future, however, energy savings will become a much more important differentiator."

Beijing is also enlisting the help of several other cities in China – namely, Qingdao, Tianijin, Qinhuangdao, Shenyang, Shanghai and Hong Kong – to host some of the events.  In some cases, such as sailing events, finding a coastal location (Qingdao) was a necessity, whereas in other cases this is an opportunity to share the public spotlight with some of China's other major cities. "Global recognition of major Chinese cities such as Beijing and Shanghai is very high, but still there are many people around the world that are not familiar with cities such as Shenyang and Qingdao – major population centres and key emerging Tier II economies.  By hosting Olympic Games events these cities will not only have a much higher global profile, but they are also seeing a substantial amount of new development and investment as the government drives efforts to improve infrastructure and implement environmental initiatives before August 2008," Ben Christensen, concluded.