The office market in Beijing has gradually shifted from the “owner market” to the “tenant market”.
On January 10, Cresa Shihua Jiarun held a press conference on “Beijing Office Market Review 2019 and Outlook 2020”. According to Shihua Jiarun statistics, Beijing’s Grade A project last year reached 876,300 square meters, which is the highest value since 2007.
Class A office supply hits record vacancy rate 14.6%
From the supply side, a total of approximately 1.26 million square meters of new supply was delivered to the city in 2019, of which Grade A projects reached 876,300 square meters, the highest value in the Beijing Grade A office market since 2007. Unlike the newly-added Grade A projects in 2018, which are all located in the two emerging business districts of Ya’ao, Wangjing and Jiuxianqiao, more than half of the supply of Grade A projects entering the market in 2019 are located in the Central Business District, Financial Street and Chang’an Street. Traditional core business district.
Because of the slowdown in macroeconomic growth, demand in the Beijing office market has weakened significantly. In 2019, the net absorption of Beijing’s Grade B office market was only 110,000 square meters, a decrease of nearly 30% year-on-year. Although the Grade A office market benefited from a total net absorption of 418,300 square meters, it mainly benefited from the good pre-leasing rate previously achieved by new entry projects and the lower average rent in the market in the second half of 2019, which will allow tenants to upgrade property quality. The demand has been released. Overall, demand performance remained weak throughout the year.
Due to the arrival of peak supply and sluggish rental demand, as of the end of 2019, the vacancy rate in the city’s office market has increased significantly. The vacancy rate of the Grade A office market in Beijing was 14.6%, a year-on-year increase of 4.7%. The vacancy rate in the Grade B office market was 13.3%, a year-on-year increase of 4.9%.
It is worth noting that among the city’s core business districts, only the vacancy rates of Wangjing / Jiuxianqiao and Chang’an Street decreased year-on-year, but the year-on-year declines in rents ranked the top two in the city, 4.8% and 4.3% respectively. It can be seen that Beijing’s office market has gradually shifted from the “owner market” to the “tenant market”. Owners facing vacancy pressure have significantly reduced their rent expectations in order to seek to reduce costs.
Declining market rents release tenants’ upgrade and relocation needs
Due to vacancy pressures and increasing market competition, office rents have continued to fall. In 2019, the average rent of Beijing’s Grade A office market dropped to 377.5 yuan per square meter per month, down 3.0% year-on-year. The average rent in the Grade B office market dropped to 227.0 yuan per square meter per month, a year-on-year decrease of 1.7%.
The downward adjustment of the city’s average rent and the increase in vacant areas have also released the need for some tenants to upgrade the quality and location of their properties. In terms of the quality of completed buildings, in 2019, the proportion of leasing transactions in the top and Grade A projects in the city to 51% of all transactions increased to 12%. Domestic tenants still rent at 84%The proportion of area continues to maintain the status of the main demand, but the foreign tenants with overall lease budgets that are conservative and have high requirements on property quality have shown a significant increase in activity in 2019, bringing a 6% increase in transaction area .
Looking forward to 2020, the Beijing office market is expected to have more than 1.1 million square meters of new supply entering the market, of which about 890,000 square meters of Grade A projects will exceed 2019 supply. Cresa Shihua Jiarun estimates that the city’s Grade A office market vacancy rate may increase to 19.0% in 2020. Since then, with the sharp decline in new supply and the recovery of the market environment, the city’s vacancy rate will gradually decline from 2021, and the average rent will also slowly rise.