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Going through the roof

(China Daily)
Updated: 2008-04-14 14:05

After living along the north fourth ring road for two and a half years, Zhang Qiang, a 32-year-old company executive, received a nasty surprise - a 600-yuan ($85.75) rent hike, his first from the landlord.

"That will increase my living cost by 25 percent!" Zhang frowns, adding the rent rise is probably due to the imminent Olympic Games.

The apartment he rents is only a 15-minute walk from the Beijing National Stadium, also known as the Bird's Nest, which will be the main track and field stadium for the 2008 Summer Olympics.

According to Jones Lang LaSalle, an international real estate service provider, the average rental level for the Beijing luxury residential market increased 18.3 percent in the first quarter of 2008 as landlords adjusted rents on the expectation that short-term tenants will pay a substantial premium during the Olympic Games.

"The increase was especially dramatic for serviced apartments, where rents in some properties increased more than 35 percent quarter-on-quarter," says Benjamin Christensen, head of Research of Jones Lang LaSalle Beijing.

The increased rents were applicable in nearly all lease terms that covered the Olympic Games period, including 12-month leases extending through to spring 2009. However, for shorter-term stays with expiration dates prior to August 2008, the increase was minimal and some serviced apartments have even begun to quote rents two ways - inclusive of the Olympic Games period or exclusive of the two-week period.

Market to stabilize

"The increase is a temporary adjustment and rents are anticipated to return to near end-2007 levels in the fourth quarter of 2008," Christensen adds.

Besides the fluctuating rents, Beijing's residential, office and retail markets are all likely to stabilize after the Olympics rather than experience a big drop, experts say.

"The Olympics are fuelling Beijing's property market, true, but it is not the primary factor," says Mao Daqing, general manager of the Beijing operations of CapitaLand (China) Investment Co Ltd. The real driving force, he believes, is the strong demand not only generated by Beijing residents themselves but also by others moving to the capital.

According to Qin Xiaomei, head of the research department of the commercial real estate services firm CB Richard Ellis's Beijing branch, about 10 percent of the property price rise can be attributed to the Olympics. The other factors are far less transient.

After all, houses don't exist in a vacuum. If the economy grows, it's only natural for real estate prices to rise. China's gross domestic product has maintained a growth rate of over 8 percent for years now, while that for Beijing hovered around 12 percent last year, higher than the average growth in a decade.

"The end of the Games won't mean the end of this booming economy, so it's unlikely that the property market will crash after the Games," says CapitaLand's Mao. "In fact, the boost that the city has received in terms of infrastructure, transportation and facilities will begin to show only after the Games."

Of the 1,500 billion yuan of Olympics-related investments in Beijing, only 22 billion yuan, or 1.47 percent, is going into stadiums. Around 280 billion yuan has been poured into infrastructure, while 700 to 800 billion yuan has flown into the property sector, according to Luo Gaobo, who specializes in Olympics and real estate research.

Promising outlook

Compared to other corporate real estate markets of past Olympic Games hosts, the post-Games outlook for Beijing is promising.

"There will be a necessary absorption period for the massive amount of new supplies delivered in 2007 and 2008, but overall demand is strong and the office and retail markets are expected to return to typical rental and occupancy levels by 2010 or 2011," says David Hand, Managing Director for Jones Lang LaSalle's Beijing office.

"The demand drivers behind Beijing's real estate growth are already extensive and they are anticipated to continue to move forward. Specifically, a rapidly expanding professional services sector driving office demand and quickly growing disposable incomes and consumerism are fueling retail demand," he adds.

Unlike more developed mature markets in previous host sites such as Sydney and Atlanta, Beijing is still emerging and although there will some short term impacts as a result of the supply boom in 2007 and 2008, the overall outlook for the both the retail and office sectors is very bright.

On the retail side, for instance, there has also been a flurry of new construction up to the Olympic Games.

"The Olympic Games is driving the completion of approximately 1.56 million sq m of new supply in the two year build-up to August 2008," says Hand. "Post-Olympics there will be winners and losers based largely upon the ability of the leasing, marketing and management teams to drive shopping center performance."

Currently, new shopping centers are enjoying high demand from international and domestic retailers who are eager to establish a significant presence in the Beijing retail market, not only in preparation for the Olympic Games, but also due to China's very promising demographic characteristics.

"Beijing's average per capita disposable income has approximately doubled since 2000 and although overall spending levels are far below what one sees in the West, there is a rapidly maturing consumer attitude and a widespread desire to enjoy the benefits of increased wealth," Hand adds.