Beijing market increasingly attractive amid economic uncertainty
New JLL whitepaper provides insight into investment opportunities worth pursuing in the Chinese capital
Beijing, 30 July 2019 – The latest whitepaper from global real estate firm JLL (NYSE: JLL) shines a light on the most compelling opportunities in Beijing, persuading investors to look beyond the current economic uncertainty and capitalize on openings in one of China’s best-performing markets. As ongoing trade war tensions compound challenges within a slow-growth environment, policy continues to play a critical role in further developing the city. Riding the Investment Wave: Exploring Commercial Real Estate Opportunities in Beijing helps stakeholders understand all of the moving parts so they can make well-informed decisions about the future.
“During a tight policy period such as this, when some have been deterred by a slowing economy and trade war disputes, it is critical for investors to understand the situation prior to making decisions”, explains Yang Mi, Head of Research, JLL North China. “This knowledge will leave them better placed to seize opportunities, particularly as fundamentals remain strong in Beijing and support a more active market in 2019.”
Unwavering demand for core assets
Government policy relating to the commercial real estate market in Beijing has led to two major trends: the limiting of core supply and the redirecting of demand to outer areas. This has lent well to three main types of favourable investment options in the current climate: core assets, value-added opportunities, and the government-backed emerging areas.
Core owners have traditionally been reluctant to release their assets, all too aware that they will be next to impossible to replace. This can be seen in the fact that core assets have accounted for just 13.0% of total en-bloc transactions in Beijing over the last decade. However, as economic pressure mounts under the tighter monetary environment, some owners may consider offloading assets at more reasonable prices. This should lead to greater market activity, giving more investors increased opportunities to participate in the process.
Conversions showing strong returns
Furthermore, there is excitement around value-added opportunities, especially in converting old or vacant retail and hotel properties to office use in prime locations. “In limiting core supply, restrictions placed on commercial development in the city centre have led to a surge in enthusiasm for office conversions, but as policies further tighten, government support for innovation centres are likely to be a bright spot in the market”, says Mi. “This would be complementary to the fast-growing tech sector in Beijing and may even lead ‘convert-to-suit’ opportunities to rise as another hotspot.”
High confidence in emerging areas
Meanwhile, targets to improve liveability at the core of the city are simultaneously working to drive demand outwards. The quick maturation of newer areas such as Wangjing, previously targeted by government initiatives, have instilled a high level of confidence in the policy-backed emerging areas currently prioritised for development. Tongzhou, to the east of the city, and the newly slated Lize Financial District in central-southwest Beijing, offer huge growth opportunities. Investment in these expanding areas of the city can ultimately be seen as a vote of confidence in the future of Beijing. However, as Michael Wang, Head of Capital Markets, JLL North China, points out: “Redirecting demand to the outer areas of the city should not be viewed as a threat to the core market. In fact, dispersing unsatisfiable demand to the surrounding areas will help facilitate core district upgrades and improve the overall liveability of Beijing.”
Tracking investor sentiment
Another key question is: what strategies are being employed by the investors who ultimately drive the market? As part of the report, JLL surveyed dozens of key domestic and foreign players, including those from the banking, insurance, and private real estate industries. In terms of sector interest, office continues to dominate the market, while retail also remains important to investors. More importantly, cap rates – among the most crucial driving forces behind all of the market activity – are some of the most sought-after numbers by investors when deciding whether to pursue an asset. For Beijing, although targets can vary depending on the investor, the lowest accepted office cap rate averages out at around 4.0%, while the retail figure is a little higher at 4.2%.
Following decades of rapid development in Beijing and across the country, authorities are now focused on a more strategic growth direction for the future. This means that investors will need to be mindful of the policy environment as they chase opportunities in the city. Although the Chinese capital is more complex than many competing cities, it requires just a few extra steps for investors to understand how to achieve the most advantageous position in the market. “Given that Beijing is among the most attractive investment destinations in China, the additional effort is manifestly worthwhile in terms of potential payoff”, sums up Wang. “We are striving to help investors make the right moves now, so that they are not left regretting any missed opportunities in the years to come.”
For more information, download the Beijing Commercial Real Estate Investment Market report here.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of over 91,000 as of March 31, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.