RESEARCH
BEIJING
OFFICE MARKET REPORT Q1 2018
2018
15+
2 3 4500+
HIGHLIGHTS
In the first quarter (Q1) of 2018, the vacancy rate in Beijing's Grade-A office market dropped by 0.6 percentage point quarter on quarter (Q-o-Q), while the average rent increased by 2.5% Q-o-Q. A number of major Grade-A office leasing transactions were concluded in Q1.
In Q1 2018, despite a large amount of new supply, the overall vacancy rate in Beijing's Grade-A office market dropped by 0.6 percentage point Q-o-Q to 5.3% as a result of large take-up in some submarkets The average rent increased to RMB380 per sqm per month, up 2.5% Q-o-Q (see Table 1). United Shanxi Merchants Tower and AZIA Center in Lize as well as AVIC Capital Plaza in Wangjing were completed, bringing about 270,000 sqm of space to the market (see Table 1). There will be excessive supply in Beijing's Grade-A office market, with around one million sqm of space being scheduled for completion over 2018. In view of abundant new supply, the CBD and Lize submarkets will witness growing concerns on absorption rates and rental performances. With the mounting pressure being loaded up to the shoulder of landlords of new projects, rent is forecast to hover at the current level (see Table 1).
TABLE 1
Beijing Grade-A office monitor
Indicator New supply Rent Vacancy rate
Source: Knight Frank Research
Q1 2018 figure 270,000 sqm RMB380 / sqm / month 5.3%
Q-o-Q change 18% 2.5% 0.6%
Outlook (Q2 2018)BEIJING OFFICE MARKET REPORT Q1 2018
RESEARCH
RENTS
In Q1 2018, the overall vacancy rate decreased by 0.6 percentage point Q-o-Q to 5.3%, due to strong net absorption of about 280,000 sqm. The average rent grew 2.5% Q-o-Q to RMB380 per sqm per month. Wangjing continued to outperform with a plunge in vacancy rate to 13.1%, due to continued expansion demand from the high-tech and Internet industries. The average rent increased by 2.8% Q-o-Q to RMB306 per sqm per month. (see Table 2). Financial Street remained the most expensive submarket in Q1, where rents increased by 1.2% Q-o-Q to RMB654 per sqm per month. It was followed by the CBD where rents increased to RMB397 per sqm per month (see Table 2). In the East Second Ring Road and Asian-Olympic Area submarkets, rents remained stable at RMB343 and RMB357 per sqm per month respectively, while the average rent in Zhongguancun increased 3.2% to RMB381 per sqm per month (see Table 2). The vacancy rates in all submarkets decreased marginally except for East Second Ring Road which saw a slight increase of 0.9 percentage point to 4.0% (see Table 2). A number of projects with a total gross floor area of around one million sqm are scheduled for completion in 2018, which should trigger a spike in vacancy rate and lead to stable rental performance.
FIGURE 1
Beijing Grade-A office rental index
2003 Q1=100
165 150 135 120 105 90 75 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 Q Q Q Q Q Q Q Q Q QQ Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q QQ Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Knight Frank Research
TABLE 2
Beijing Grade-A office market indicators, Q1 2018
Submarket CBD Lufthansa Financial Street East Second Ring Road Zhongguancun Asian-Olympic Area Wangjing
Source: Knight Frank Research
Rent (RMB/sqm/ month) 397 359 654 343 381 357 306
Rent % change (Q-o-Q) 1.4 3.6 1.2 0.0 3.2 0.0 2.7
Vacancy Rate 3.2% 6.7% 2.4% 4.0% 2.0% 4.1% 13.1%
Vacancy rate percentage point change (Q-o-Q) 0.8 3.4 0.7 0.9 0.3 4.4 8.6
TABLE 3
Beijing major Grade-A office leasing transactions, Q1 2018
District Wangjing Zhongguancun AOA Financial Street Building Ronsin Technology Center Raycom Infotech Park Tower Tenant Black & Veatch Google (China) Tianrun Bank of Nanjing Area (sqm) Transaction Type Relocation Expansion
4,000 3,500 5,000 2,000
CSC Fortune International Center Excel Centre
New Lease Renewal
Source: Knight Frank Research Note: All transactions are subject to confirmationSUPPLY AND DEMAND
United Shanxi Merchants Tower and AZIA Center in Lize as well as AVIC Capital Plaza in Wangjing were completed, adding about 270,000 sqm of space to the market. The total new supply over 2018 is estimated to reach around 1.0 million sqm, half of which will be located in the core business areas of Beijing. Demand should continue to increase on the back of further development of the nancial and IT industries in the capital city. However, considering the signi cant amount of new supply within the year, the average vacancy rate is forecasted to spike and occupiers shall gain more bargaining power in rental negotiation.
FIGURE 2
Beijing Grade-A office supply, take-up and vacancy rate
1,500
'000 sqm
Supply (LHS) Take-up (LHS) Vacancy Rate (RHS)
30% 25% 20%
1,200
900 15% 600 10% 300 5% 0%Source: Knight Frank Research Source: Knight Frank Research
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20172018F
FIGURE 3
INVESTMENT
investment transaction was recorded in Q1: Nanhai Corporation acquired 92.36% of shares of Digital Manor from Sino-i Technology Limited for HKD521 million. Digital Manor is located in Beijing Economic and Technological Development Zone, with a total GFA of about 88,000 sqm.
Beijing Grade-A office price index
2003 Q1 = 100
240 225 210 195 180 165 150 135 120 105 90
Beijing increased by 1.2% Q-o-Q during
75
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 200 5 200 6 200 7 200 8 200 8 200 9 201 0 201 1 201 2 201 3 201 4 201 5 201 6 201 7 201 8
Source: Knight Frank Research
TABLE 4
Beijing major Grade-A office sales transactions, Q1 2018
District Fengtai Building Beijing Nobel Center No. of units 4 Area (sqm) 2,154 Price (RMB/ sqm)
45,233
Source: Knight Frank Research Note: All transactions are subject to confirmation
4