Beijing Office Market Report

BEIJING OFFICE MARKET REPORT
Q2 2018

BEIJING
BEIJING
Beijing, formerly known as Peking, is the capital of the People's Republic of China and the
second largest city in the country after Shanghai. The city, situated in northern China, is
administered as a direct-controlled region under the national government with 16 urban, rural
and provincial locales, encompassing 1,6411 sq. km.
Beijing is the nation's political, cultural, and educational hub as well as one of the world's
leading centers for business, finance, education, innovation and technology. It is also known
for its major infrastructure development regarding national highways, expressways, railways,
and high-speed rail networks. The Beijing Capital International Airport is the second busiest in
the world in passenger traffic since 2010. Besides, as of 2016, the city's subway network is the
second longest in the world.
One of the world’s most crowded capital urban communities, Beijing was the first city in the
modern era to reach a population of more than one million people – a feat it achieved in
1775. It is the second largest Chinese city by urban population after Shanghai.
Demographic Indicators
Population (2017 estimates)
21.7 million
Decadal Growth Rate (2000-2010)
44.0%
Population Density (2017 estimates)
1,322 persons/sq.km.
Average Life Expectancy
81.12 years
Beijing’s population has grown rapidly in the past sixty years. In the time period since China’s
market reforms began in earnest, the number of people living in Beijing has more than
doubled. However, according to the latest figures from the National Bureau of Statistics, the
population of Beijing has dropped by 0.1% in 2017 to 21.7 million. This came after a 59%
surge in Beijing's population between 2000 and 2016. Multiple factors contributed to the
capital's population decline, one of them being the slowdown in migration from rural areas,
with the attraction of mega cities gradually waning against the backdrop of nationwide
urbanization. As per its latest development scheme, Beijing plans to cap its population at 23
million by 2020.
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Beijing is the powerhouse of the Chinese economy;
over 50 of the Fortune Global 500 companies have their headquarters
located in the capital
The average life expectancy in Beijing is 81.12 years, the male life expectancy at 79.16 years
and female life expectancy at 83.17 years. This is well above the national average of 75.15
years, albeit lower than the average in some other major Chinese cities such as Shanghai.
Significantly, Beijing has a higher ratio of males to females than the rest of the country. At the
time of the 2010 census, the city’s gender balance was pegged at 51.6% male and 48.4%
female.
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BEIJING
ECONOMY
Beijing’s economic prowess is supported by the fact that around 52 of the Fortune Global 500
companies have their headquarters located in the capital, including petroleum refiners China
National Petroleum and Sinopec Group, Industrial & Commercial Bank of China, Agricultural
Bank of China and China State Construction Engineering. The city is also home to over 100 of
the largest companies in China.
Beijing is the powerhouse of the Chinese economy. The city has a post-industrial economy
that is dominated by the tertiary sector (services), followed by the secondary sector
(manufacturing, construction) and the primary sector (agriculture, mining). Beijing’s service
sector accounted for 80.6% of the city’s GDP in 2017. Its economy grew 6.7% year-on-year
(YOY) in 2017, totaling 2.8 trillion yuan (about 436 billion U.S. dollars), accounting for about
3.38% of the country's total output. Financial services, information technology services, and
scientific research and technical services, were the three biggest sectors, comprising 16.6%,
11.3%, and 10.2% of the GDP respectively.
In the 2017 Global Financial Centres Index, Beijing was ranked as having the 16th most
competitive financial center in the world and sixth most competitive in Asia.
Beijing’s GDP growth was recorded at 6.7% in 2017, the region’s
overall growth driven by financial services, information technology
services, and scientific research and technical services
Ranked 3rd strongest city in the world
demonstrating economic clout
(Cities of Opportunity Index 2016 by PwC)
Home to 52 Fortune Global 500 companies
- the most in the world
6th most competitive financial centre
in Asia and 16th in the world
(Global Financial Centres Index 2017)
Known as the
"Billionaire capital of the world"
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BEIJING
OFFICE MARKET OVERVIEW
Beijing has been consistently acknowledged as a global business hub,
primarily owing to its developed infrastructure. Its strengths in human
capital and scientific research have helped in attracting large
multinational companies to set up their headquarters here.
Beijing holds a pivotal position as one of the key business epicentres in the heart of Asia. The
city has been consistently acknowledged as a global business hub, primarily owing to its
developed infrastructure and its status of being a political, cultural and international
exchange centre of China. Its strengths in human capital and scientific research have helped
in attracting large multinational companies to set up their headquarters here.
Business Districts
Beijing Central Business District (CBD) is the primary area for finance, media, and business
services in the city and is located to the east of downtown, near the foreign embassies along
the eastern Third Ring Road between Jianguomenwai and Chaoyangmenwai. The CBD is
home to several important skyscraper office projects and enjoys the presence of a large
number of Fortune 500 businesses in the financial services segment as well as companies
from media, information technology, consulting and the service sector arena. Over 60% of
the overseas-funded companies in Beijing are located in the CBD. Presently, the area is
undergoing massive development and once it is completed the region is expected to be
catapulted into national and global limelight.
Besides the CBD, there are several other established office markets preferred by occupiers. At
the center of the citywide development effort lies Beijing Financial Street in Xicheng District -
a 3.36 million-sq.m. development that contains a diverse mix of commercial and residential
buildings. The vibrant business district, built in time for the 2008 Olympic Games, is popularly
known as China’s new “Wall Street” and is lined with headquarters of large state banks and
insurance companies. The country's financial regulatory agencies, including the central bank,
bank regulator, securities regulator and foreign exchange authority, are located in the
Financial Street neighborhood.
Another important office sub-market is the Zhongguancun region, China's silicon village in
Haidian District northwest of the city, which is home to both established and start-up tech
companies. Zhongguancuan is often referred to as "China's Silicon Valley" owing to its
proliferation of technology companies and favorable climate for early stage funding as well as
good performance in start-up output. Due to the proximity and involvement of China's two
most prestigious universities, Peking University and Tsinghua University, along with the
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BEIJING
Chinese Academy of Sciences, Zhongguancun is considered to have bright future prospects.
The region boasts of many large technology companies of having their Chinese headquarters
and research centers in Zhongguancun Technology Park, such as Google, Intel, AMD, Oracle,
Motorola, MySpace, Sony and Ericsson. IT major Microsoft also has its Chinese research
headquarters in the region that can accommodate 5,000 employees.
Business Districts in Beijing
Traditional Business District
Beijing Central Business District (CBD)
Other Established Sub-markets
Financial Street, East Chang’an Avenue, AGV and Olympic Park,
East Second Ring, Lufthansa Center, Wangjing, Zhongguancun
Decentralized Sub-markets
Lize Financial District, Tongzhou, BDA
Beijing Central Business District (CBD) is the primary area for
finance, media, and business services in the city; other sub-markets
like Beijing Financial Street is known as China’s new “Wall Street”
and Zhongguancuan is often referred to as "China's Silicon Valley"
Besides these major office sub-markets, the Wangjing region, too, houses several technology
companies - both small start-up companies as well as and national large international
corporations. A number of Chinese headquarters of multinational companies are based in
Wangjing, such as Daimler Chrysler, Caterpillar Inc and Siemens as well as the Chinese
e-commerce major Alibaba. The region also accounts for many foreign telecommunication
R&D offices for companies such as Panasonic, Ericsson, Motorola, Sony Ericsson, Nortel,
Alcatel and Lucent.
Other sub-markets that are catching the spill-over demand for office space are East Chang’an
Avenue, AGV and Olympic Park, East Second Ring and Lufthansa Center. These areas have
shown an increasing overlap in function, viability, connectivity, and attractiveness with
Beijing’s well-established central areas. With the scale of development underway in both core
and decentralized areas, a new set of markets will define the office market landscape in
Beijing in the forthcoming period.
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The Emergence of Decentralized Markets
Beijing is gradually witnessing the emergence of decentralized office markets in the
peripheral regions of the city. While the city is not in a hurry to cater to low-margin office
occupiers, pertinent factors such as high rents by Asian standards, major expansion and
increased density of urban rail mass transit, and a steadily tight market in the key office
markets for the past few years have signaled interest in movement from central areas to
decentralized areas in the city fringes. Additionally, the regional integration policy which aims
to energize underdeveloped local economies in areas adjacent to Beijing have further
augmented the underlying demand for decentralized office markets.
In recent periods, clusters in Tongzhou, Lize, and the Beijing Economic and Technological
Development Area (BDA) have emerged as having substantial potential to become important
office markets in the future. The quantum of office supply planned in these markets will soon
promote them as new decentralized office sub-markets in the fringes of the city.
Tongzhou is expected to take the lead owing to the strong government focus tied to the
relocation of municipal government functions that will initiate development of the office
market in the area. The region is earmarked for redevelopment into a comprehensive central
business district with an emphasis on consumer retail. A substantial quantum of office space
is currently planned for Tongzhou.
In Lize, the majority of supply in the pipeline is scheduled to be of Grade A quality and is likely
to become a new financially focused sub-market, targeting non-traditional financial sector
tenants. This development in Lize bodes well for the underdeveloped southern half of the city
and will eventually lead to fueling economic activity in the region.
BDA is a state-level economic and technological development zone in Beijing. Its development
as a decentralized market is expected to take longer than the other markets, owing to
constraints such as distance and limited connectivity. On a positive note, its deferred growth
will ensure a phased advent of new office sub-markets, rather than all the markets rising at
once, and as a result, saturation of the markets would be avoided.
In recent periods, clusters in Tongzhou, Lize, and the Beijing
Economic and Technological Development Area (BDA) have emerged
as having substantial potential to become important office markets in
the future. Factors such as high rents by Asian standards, major
expansion and increased density of urban rail mass transit, and a
steadily tight market in the key office markets for the past few years
have signaled interest in movement from central areas to
decentralized areas in the city fringes.
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BEIJING
Map of Beijing Office Sub-markets
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BEIJING
MARKET INDICATORS
280,000 sq.m. office space absorbed in H1 2018;
new supply to the tune of 255,000 sq.m.
Beijing currently houses Grade A office space stock of approximately 7 million sq.m. Strong
leasing demand was observed in 2018 and Grade A office absorption was recorded at around
280,000 sq.m during the first half of 2018 (January-June), while the total supply for the period
amounted to 255,000 sq.m.
Amongst the key office sub-markets, AGV & Olympic Park and Wangjing accounted for a
whopping majority of the city’s total absorption in Q2 2018, though the CBD saw a number
of large leasing transactions as well. The IT and finance sectors continued to remain dynamic
and several remarkable transactions were inked during the quarter. Stricter regulations on the
financial sector have slowed expansion amongst companies in traditional banking, insurance
and securities sectors. Thus, the majority of leasing demand from the financial industry
stemmed from funds and investment companies. Additionally, sectors such as professional
services, real estate, and pharmaceuticals accounted for several significant transactions, too.
Significantly, the occupier profile in the CBD has been observed to have been shifting in
recent years. While the finance sector continued its stronghold in the market, there has been
a marked decline in office occupiers from the IT sector. In contrast, there has been
considerable increase in tenants from professional services sector in the region. Another key
trend observed in the office market of Beijing has been the strengthening of co-working
spaces. As a result, developers have been entering the co-working arena through partnerships
and by creating their own brands.
In Q2 2018, the average rent of Beijing’s Grade A office market increased slightly to RMB
382/sq.m. per month, depicting an increase of 1% quarter-on-quarter. This is primarily due to
the active market performance observed during the period, with landlords in certain submarkets
raising their rents. Meanwhile, on the vacancy front, the demand having outstripped
supply in Q2 2018, the average vacancy rate saw a marginal decline on a quarterly basis and
was recorded at 5% in Grade A office markets.
The occupier profile in the CBD has been observed to have been
shifting in recent years.
While the finance sector continued its stronghold in the market, there
has been a marked decline in office occupiers from the IT sector.
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Annual Supply, Absorption & Vacancy Trends
Area ('000 sq.m.)
1400
1200
1000
800
600
400
200
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 H1
2018
Supply Absorption Vacancy
25%
20%
15%
10%
5%
0%
Quarterly Average Rental & Vacancy Trends*
RMB/sq.m./month
384.0
382.0
380.0
378.0
376.0
374.0
372.0
370.0
368.0
366.0
364.0
Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018
8.0%
7.0%
6.0%
5.0%
4.0%
3. 0%
2.0%
1.0%
0.0%
Rental
Vacancy
Sub-market Rentals Q2 2018
Zhongguancun
Wangjing
Lufthansa
East Second Ring
AGV and Olympic Park
East Chang'an Avenue
Financial Street
CBD
0 100 200 300 400 500 600
RMB/sq.m/month
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Grade A rentals in the city recorded at an average of RMB 382/sq.m.
per month; vacancy rate constricted at 5.1%
Beijing - Key Office Lease Transactions, 2018
Company Building Sub-market GFA (in sq.m.)
AIA China Merchants Tower CBD 10,000
Xiaokaxiu CIVIC Capital Tower Wangjing 20,000
Google Raycom Infotech Park Zhongguancun 3,450
Jie Yue United COFCO Plaza East Chang’an Avenue 5,000
Liepin.com Rosin Technology Wangjing 12,000
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BEIJING
OUTLOOK
• Beijing’s GDP grew by 6.8% YOY in Q2 2018, denoting an upward growth of 0.1 ppts
when compared with the growth rate for the year 2017, thus indicating a stronger
economy. The services sector saw a much faster growth rate than the overall GDP growth,
recording an increase of 7.2% YOY, thereby allowing it to continue providing consistent
demand for office space.
• Further, the growth rate of the IT sector - one of the key demand drivers of office space in
the city, jumped to 18.3% YOY, up 5.7 ppts when compared with the figure for the year
2017. This, coupled with Beijing's municipal government promoting the development of
high-tech industry in Beijing, the sector is expected to witness continued growth and ably
support the growth rate of the office market.
• Considering the strong economic conditions and robust market performance observed in
H1 2018, the latter half of this year will continue to witness steady net absorption in
Beijing. A significant quantum of supply is expected to enter the market during the period,
including Beijing’s core business areas like CBD and Wangjing, along with a few
noteworthy projects gaining completion status in Lize, thereby pushing up the vacancy
rate in H2 2018.
• On the occupier front, the co-working and flexible workspace industry has been
increasingly strengthening in Beijing. Its potential to absorb space at a fast pace and on a
large scale is expected to help landlords in remaining confident on the face of the
upcoming supply.
• Thus, with demand continuing to increase moderately and influenced by the rapid
expansion of total stock, we expect Beijing’s average rent to edge down slightly by the end
of 2018 and remain under pressure in the forthcoming period.
• Meanwhile, a lot is expected from the mega-expansion of CBD area once the project is
completed. The upgraded business hub will not only relieve the dearth of centrally located
office options for companies in Beijing, it will also promote efficiency along with a free
flow of ideas and information between professionals, putting the city on par with
prominent cities like London, New York, and Hong Kong.
• New buildings in the CBD Core Area are expected to exceed the quality of current
market-leading Grade A buildings, and even surpass many existing international Grade A
buildings in terms of quality and amenities provided.
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Considering the strong economic conditions and robust market
performance observed in H1 2018, the latter half of this year will
continue to witness steady net absorption in Beijing. A significant
quantum of supply is expected to enter the market during the period,
including Beijing’s core business areas like CBD and Wangjing, along
with a few noteworthy projects gaining completion status in Lize,
thereby pushing up the vacancy rate in H2 2018.
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Disclaimer
This report contains information available to the public at various public domains and has been extracted by Vestian Global Workplace Services from such public domains. Vestian accepts no responsibility
if this should prove not to be accurate. No warranty or representation, expressed or implied is made to the accuracy or completeness of the information contained herein, and the same is submitted
subject to errors, omissions, change of price, rental or other conditions and withdrawal without notice.