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Why office space is a scarce commodity in Beijing

Real estate consultant JLL reveals there’s relief in sight from supply crunch in CBD; many companies are looking at more affordable decentralised locations


​SINGAPORE, 20 April 2017 – The availability of office space in Beijing is among the lowest in the world, with a less than five per cent vacancy rate in Grade A office buildings since end-2012. With demand often outstripping supply, developers are responding in a novel way: they are converting some of the Chinese capital's malls into offices.

"Landlords are responding to highest and best-use realities," says Steven McCord, Head of Research, North China, JLL. "Beijing's fast-evolving retail landscape has caused some retail space to underperform. Office space in Beijing can command a higher rent than retail space that is not well-located. Many retail projects would generate higher, more stable income as office space. Pacific Century Place is the most successful conversion to-date and is providing inspiration for others to follow." McCord noted up to half a dozen conversion projects in progress around the city.

With the supply crunch – in part due to increasing demand from domestic financial and technology companies – Beijing's office rents now rank fourth highest worldwide after Hong Kong, London, and New York. Grade A building rents in the city's priciest office district – Finance Street – have reached a new high that is proving to be the threshold for a significant number of foreign companies. Their presence in Finance Street has declined by 25 per cent in a year, leaving them to account for just 13.6 per cent of total leased space in the area.

"In order to stay in Finance Street, some tenants have either reduced their space down to a small, representative office or negotiated short-term leases. The departure and downsizing of foreign firms in Finance Street has created opportunities for domestic finance firms, which now occupy 86.4 per cent of leased space," says Mr McCord.

Decentralisation trend

Companies that need larger spaces – such as financial services firms, tech companies, and China's burgeoning global companies – are now looking for more affordable office space in decentralised areas.

"Beijing's office market has reached a key turning point in terms of geographic maturity, tenant composition, and building quality," says Eric Hirsch, Head of Markets, JLL Beijing. "As the market continues to mature, new supply is starting to come online and domestic occupiers are dominating the market. Under intensifying competition to attract talent, and with an increased focus on workplace health and productivity, more companies are requiring better quality buildings. As a result, we'll see a market that's increasingly decentralised, driven by the development of two up-and-coming commercial areas, Lize and Tongzhou."

Financial services companies will drive demand

The next wave of new supply set for the later part of the decade is expected to relieve pent-up demand accumulated during a nine-year construction down-cycle. This trend is already evident in the take up of new buildings by domestic financial services and tech firms.

In addition, China's 'One Belt, One Road' policy is set to put domestic companies into overdrive and contribute to demand for headquarters operations in Beijing.

"As homegrown giants expand overseas and require more office space to oversee this activity from a dependable home base, Beijing will have the most to gain as it is already home to a high-density of decision-makers, in both state-owned enterprises and private-sector firms," McCord adds.

For more information on "No Turning Back – Beijing's Office Market Set to Shine", download the report here.

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About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At year-end 2016, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 77,000. As of December 31, 2016, LaSalle Investment Management has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit http://www.jll.com/.

JLL has over 50 years of experience in Asia Pacific, with 36,000 employees operating in 94 offices in 16 countries across the region. The firm won the 'World's Best' and 'Best in Asia Pacific' International Property Consultancy at the International Property Awards in 2016 and was named number one real estate investment advisory firm in Asia Pacific for the sixth consecutive year by Real Capital Analytics.  www.ap.jll.com.