Office rents in Beijing increased rapidly in the second half of 2010 as vacancy rates a reached six-year low amid strong demand for office space, according to Jones Lang LaSalle.
While MNC’s became more active in 2010, domestic state-owned enterprises (SOEs) continued to be the main demand drivers in 2010, purchasing entire buildings for self-use and leasing copious amounts of space throughout the city. As a result, 2010 was a record year for net absorption, which hit a high of 1.3 million square metres (sqm). In 4Q10 alone, approximately 375,000 sqm was absorbed, with the majority of the take-up coming from firms involved in the IT, finance, insurance, law, automotive and pharmaceutical sectors.
The areas with the strongest demand were the CBD and Finance Street, which had net absorption of 145,000 sqm and 112,000 sqm for the quarter and 394,000 sqm and 333,000 for the year, respectively; these two sub-markets have been the most sought after for the last two years.
Vacancy rates fell in each of the city’s sub-markets as leasing activity was robust and no new leasable buildings entered the market in 4Q10. The CBD had the biggest improvement with vacancy decreasing 9.6 percentage points quarter-on-quarter; however, at 25.9%, it is still the sub-market with the highest rate. Zhongguancun continues to have the lowest rate in the market at 2.5%. At the end of 2010, the overall market vacancy rate fell 5.4 percentage points quarter-on-quarter and 15.7 percentage points year-on-year to 12.4%, Beijing’s lowest level in six years.
With vacancy rates reaching a six-year low, rents have surged marketwide. Overall rents increased 8.1% quarter-on-quarter and 25.2% year-on-year. In 4Q10, the CBD experienced the largest increase, growing 9.0% quarter-on-quarter and 27.0% year-on-year, while Finance Street realized the largest year-on-year increase at 31.3% year-on-year and 5.9% quarter-on-quarter.
“Landlords are increasingly bullish as vacancy rates head below 10% in most sub-markets; large blocks of available space are becoming hard to find and rents are quickly reaching their pre-2008 financial crisis highs," says Julien Zhang, Managing Director of Jones Lang LaSalle.
In 2011, new supply is anticipated to be around 880,000 sqm, with the majority of new supply concentrated in the CBD, Finance Street and East 2nd Ring Road area. As new supply enters the market, vacancy rates will begin to fluctuate, causing rental growth to decelerate, while rents will continue trending upward.
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