No new supply enters Beijing’s Grade A office market in the first quarter
On March 23, Shihua Jiarun held the “Beijing Office Market Review in the First Quarter of 2020 and Full-year Outlook”, stating that Grade office market has no new supply entering the market, the demand side has weakened, and the downward adjustment of rents is irreversible.
“In the first quarter of 2020, there was only one project located in the Wangjing / Jiuxianqiao business district in the city entering the Grade B office market in Beijing.” Li Fangyue, Managing Director of Cresa Shihua Jiarun Said that the Beijing Grade A office market had no new supply entering the market this quarter, and the total stock remained at 8.98 million square meters.
In terms of demand, Li Fangyue introduced: “Most of the leasing transactions in this quarter were signed or agreed before the Lunar New Year. Affected by the epidemic, the inconvenience of housing inspections and the delayed resumption policies of many enterprises have made tenants active in the year. The number of tenants nearing the expiration date of their leases is mostly to choose to renew their leases.
Combined with the current weak market demand and many tenants reducing their leased areas or relocating, the net absorption of the Beijing Grade A office market will be only about 7,400 square meters in the first quarter of 2020. It is worth noting that some tenants who still have a large area for expansion have chosen to expand their leased properties in Grade B properties in the same business district near the corporate headquarters this quarter. The net absorption of the Grade B office market in Beijing was nearly 55,000 square meters.
Because there is no new supply entering the market, and the emergence of the epidemic has made tenants wait and see. Xu Rongqing, senior managing director of Cresa, said: “The vacancy rate of the Beijing Grade A office market in this quarter was 17.1%, which was the same as the previous quarter, but it was significantly higher than 7.0% in the same period last year.”
Weak overall demand, coupled with intensified market competition, some owners facing greater leasing pressure continued to reduce project rents this quarter. Xu Rongqing pointed out, “The average rent of the Beijing Grade A office market fell 0.4% quarter-on-quarter to RMB 376.0 per square meter per month. The average rent of the Grade B office market recorded RMB 223.9 per month per square meter, down 1.4%. “
Among the business districts in the Grade A office market, the average rent of the Asia-Australia business district fell by 0.7% quarter-on-quarter, the largest decline. The increasing conservativeness of tenant leasing budgets has led to the Central Business District and Zhongguancun Commercial District, which rank the top two in the city’s commercial districts, with rents down by 0.4% quarter-on-quarter.
According to Li Fangyue, the technology and financial industries are still the main source of demand for the Beijing office market in the current quarter, and they accounted for more than 67% of the city’s total new and expanded rental transactions. In addition, the transaction area of the biopharmaceutical industry in this quarter rose to 10%, a significant increase of 8 percentage points from the previous quarter. The above-mentioned industries as a whole are expected to usher in good news after the epidemic, including online education, artificial intelligenceThe market performance of tenants in industries such as energy and insurance is particularly worth looking forward to.
Looking forward to 2020, Wang Gang, Executive Managing Director of Cresa Shihua, believes that the expected supply peak in the Beijing office market has not been eased by the outbreak, and the city is expected to still have more than 1 million square meters in 2020 Of new projects entered the market, of which Grade A projects reached about 730,000 square meters.
Wang Gang pointed out: “The market currently has a high degree of uncertainty. Due to the impact of the macroeconomic situation, the recovery in demand is only relatively speaking. It is expected to remain at a low level as a whole. After the epidemic, some tenants will The strategy will also be adjusted. In order to reduce operating costs, tenants who have been affected by the epidemic will choose to reduce their existing leased area, relocate or relocate to a co-working property. As a result, Grade B and park properties It is expected to be favored by the market. “
Combining the current economic, market, and epidemic prevention and control situation, Cresa Shihua Jiarun predicts that the vacancy rate of the Grade A office market in Beijing is expected to be pushed to a historical high of over 21% by the end of 2020.
Although some projects with healthy tenant structure and good occupancy rate are expected to maintain the overall stability of the rental level, the intensified market competition may make landlords with more pressure on leasing further increase the decline in rents and lead to city-level office buildings The average rent in the market decreased by 5.2% year-on-year to about 357.7 yuan / m².
“Don’t waste a crisis”. Facing the possible window period, Cresa advises tenants to take advantage of their own needs to seize the opportunity for a sharp reduction in market rents and consider relocating to non-core business districts, High quality projects with relatively low rent levels.