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Rentals inch down in Beijing in Q1

By Hu Yuanyuan (China Daily)
Updated: 2009-04-09 07:46

Average rents in the Beijing office property segment declined by 8.3 percent q-o-q in the first three months of 2009, better than the market expectation, real estate services provider Jones Lang LaSalle (JLL) said yesterday.

However, in the first quarter, the Beijing office market outperformed that of Hong Kong and Shanghai, which saw a sharp decrease of 20 percent and 15 percent respectively.

Related readings:  Report: Office rents to drop in Beijing in 2009  Controversy arises over rental regulations  China to boost rental sector to make housing affordable

Julien Zhang, managing director at JLL's Beijing office, attributed the "modest" drop in Beijing office market rentals to domestic demand.

"Indeed, encouraging levels of demand, especially from domestic companies, and increased optimism in the government's economic stimulus plan saw the majority of landlords refrain from lowering rents too severely," said Zhang.

Even though demand is relatively lower than that during the boom of the past several years, it has not dropped off the cliff. For many landlords, including those of new buildings where vacancy rates are high, the level of active inquiries from the market and potential improvement in the domestic economy has come as a positive signal to not yet reduce rents drastically, Zhang said.

However, the vacancy rate in Beijing's office market space will continue to rise this year, weighing in on the average rentals, JLL said.

With the completion of four new office buildings in the first quarter of 2009, the overall vacancy ratio has climbed to 24.7 percent. Rents in Finance Street recorded the sharpest decline, down 11.7 percent q-o-q; while in the CBD, rents declined 10.7 percent q-o-q with the vacancy ratio climbing to 37.4 percent by the end of March. The completion of Henderson Land's 177,000-sq m World Finance Center further contributed to a rise in vacant office space in the CBD area.

And, an additional 2 million sq m is scheduled for completion in the city in the remaining three quarters of the year.

"How the market performs for the remainder of the year will likely hinge on what happens in the second quarter this year," said Zhang. "If current levels of demand can be sustained, then we may continue to see rents in the Beijing office market decline more moderately than in other regional office markets."

Unlike Hong Kong or Shanghai, Beijing is largely driven by domestic demand, Zhang pointed out.