Beijing's office market has emerged only since the late 1980s when many international companies were confined to hotel suites as suitable grade-A premises were unavailable. Recently completed grade-A office buildings have improved the availability of quality office property in Beijing, most of which are in five locations:
The central business district (CBD)
-The traditional Beijing CBD is usually defined as the area bounded by the east second and third ring roads between Chaoyangmenwai Avenue and the Tonghui River. The CBD area currently incorporates nine grade-A office buildings and is the favoured location for many foreign firms.
-The facilities and amenities available make it the most developed area in Beijing, with the recent extension of the second sub-way line testament to this. The subway extension has eased traffic congestion problems in the CBD.
-Capital Airport is relatively easily accessible, requiring a 30-40-minute drive by car. Chaoyang council is expected to promote the CBD as Beijing's true business centre, a move that should enhance the attractiveness and image of the CBD.
East Changan Avenue
-East Changan Avenue is situated in Dongcheng district alongside some of Beijing's premier attractions in Tiananmen Square and the Forbidden City. Changan Avenue's appeal as an office location is its position in the heart of Beijing, with the CBD and Finance Street areas nearby.
-The area is well serviced by many of Beijing's leading five-star hotels, although the main drawback is peak-hour traffic congestion. The area is relatively well supplied by grade-A office buildings, the most prominent being Oriental Plaza.
Third Embassy Area
-The third embassy area is a sub-section of the Chaoyang district. This area is home to many of Beijing's foreign embassies and a number of grade-A buildings.
-The area is well serviced by supporting facilities and amenities, provides convenient airport accessibility and offers comfortable surroundings in the many parks and greenery neighbouring the embassies. With a strong base of foreign and local companies, the third embassy area is a true competitor to the CBD.
-Zhongguancun is located in Beijing's north-western Haidian district. Although currently underdeveloped, the area has attracted substantial interest from the information technology (IT) sector seeking to take advantage of government incentives and the potential labour pool available from the many nearby universities and research institutions.
-For Zhongguancun to become a truly competitive alternative to the Chaoyang district, significant infrastructure improvements are required. The area lacks adequate road facilities, but this should be partly solved by the completion of the northern and western sections of the fourth ring road. So far, transportation problems and the lack of grade-A space have resulted in many otherwise willing companies locating elsewhere.
-The Finance Street area, so called due to the reduced income tax rates offered to finance companies, has its heart in the south-west corner of the second ring road. The majority of tenants are either state-owned or recently reformed state companies. Foreign enterprises are unlikely to move into the area in the near future due to the questionable quality of grade-A buildings and its inadequacy compared with Chaoyang district.
-The extensive growth in local and overseas companies arriving in Beijing has boosted demand for office space throughout the city. Recently, demand has been concentrated in the emerging Zhongguancun district and the clusters in and around the CBD.
-The increasing number of local IT companies has been an important contributor to demand. The increase has in part been brought about by the government's desire to make Beijing China's leading IT centre.
-The concentration of demand from IT companies has been focused on the Zhongguancun area. IT companies require buildings providing easy accessibility and able to satisfy their high technical infrastructure needs. There are few satisfactory buildings in the area, although this problem should ease over the next year with a further 300,000 sq metres of office space due to be completed.
-Banking and insurance companies have moved into the Financial Street district, taking advantage of the reduced income tax rates. Government initiatives aimed at making this area Beijing's financial headquarters have so far had limited success in attracting foreign enterprises and do not appear likely to change in the near future. A main reason is the lack of satisfactory grade-A premises and supporting amenities.
-Foreign companies are the main contributors to demand for premium quality grade-A space, with the majority preferring to locate in the Chaoyang district. Their requirements may include: easy accessibility, close proximity to clients, supporting facilities and amenities, airport access, guaranteed power supply, advanced communication systems, and four pipe-air conditioning systems
-China's impending WTO entry is expected to have a significant influence on future demand for office space. Large numbers of companies are expected to look into entering the banking and insurance sectors, which in Beijing will be opened up two years after China's WTO accession.
-Quality grade-A buildings in Beijing have traditionally been well occupied. With an increasing number of top-of-the-market grade-A projects being either recently completed or due for completion, the distinction between the middle-of-the-road and quality grade-A supply will become more apparent. This should result in a greater distinction between rentals commanded.
-Recent leasing activities have enabled the grade-A office average vacancy rate to decline from 21.2 percent in March to 12.2 percent in July, with the possibility of further declines if demand increases as expected.
Leading grade-A buildings
The Kerry Centre, completed in late 1998, is situated in the CBD on the western side of the east third ring road. Its prime location and reasonable rentals have contributed to high occupancy as it has been well received by world-renowned companies. Kerry Centre has a prime location, state-of-the-art facilities and convenient air-port access. Potential problems include peak-hour traffic congestion and poor views of the surrounding area for lower floor occupants.
Pacific Century Place
Pacific Century Place is another quality grade-A building currently boasting low, vacancy rates after its completion of Tower B last year. The state-of-the-art utilities, advanced telecoms, convenient location and housing of big name tenants such as Johnson & Johnson and IBM have contributed to raising its image.
China World Trade
Centre The China World Trade Centre is well located in the CBD. Phase Two, an improved reproduction of the existing tower has added a further 61,000 sq metres of office space. Convenient subway access and reasonable traffic flow have resulted in relatively easy access. China World Phase Two is facing competition from the nearby grade-A Kerry Centre and Onward Science and Trade Centre.
China Resources Building
China Resources Building is located on the east second ring road just outside the CBD area. The advantages offered include proximity to the Jianguomen subway exit and reasonable traffic flow. Many IT companies have been attracted to this building with Yahoo! one of the higher profile tenants.
Projects under construction include:
Oriental Plaza, with a combined gross floor area exceeding 800,000 sq metres, will become the largest multi-purpose development of its kind in China upon completion expected in 2002. Situated at the intersection of Changan Avenue and Wangfujing Street, the recently completed Phase One has reportedly been leasing well, with Tom.com, Dow, Cisco and Avaya all agreeing terms. It is reported that rentals are between the high US$30s to low US$40s, although rent-free periods are achievable.
Cyber Tower is part of the soon-to-be-completed High-tech Convention and Exhibition Centre complex in Zhongguancun. It will be one of the premier grade-A office buildings in Zhongguancun, offering 70,000 sq metres of gross floor area. The building is reported to be selling well, with leasing space also available.
China Life Building
With the completion date further delayed to the year's end, the China Life Building will offer prime location in the CBD with easy accessibility. Competitive rents should be on offer as the owners attempt to fill the 90,000 sq metres of gross floor area.
Onward Science and Trade Centre Block Four
Situated opposite the China World complex, the completion of Block Four will add a further 39,000 sq metres of office space to the existing construction.
-Rents have risen on average 50 percent from the low rates recorded towards the end of 1999. Rents initially rose in the CBD, with the other markets following suit. The dominating factor behind the increase in rentals has been the growing numbers of dotcom companies entering the market and multinationals increasing their space requirements.
-The subsequent supply yet to the market may affect achievable rentals in 2001. As evidenced with the release of Pacific Century Place Phase One in early 1999, initially below-market rentals were on offer to attract big name clients. Similar policies are likely to be employed by new market entrants, despite recent rental strengthening.
-With many companies taking advantage of the record low rents and upgrading to grade-A space in 2000, the distinction between grade-A and the rest of the market has become more apparent.
-The expected short-term forecast is for rents to continue on a slight upward trend as the average monthly figure is not expected to drop below US$30 per sq metre in the fore-seeable future.
-Over the next three to five years, an increase is expected as supply declines and much of the excess stock will be absorbed with increase demand. The level of rental increase will to a large extent be related to economic growth. If economic growth is maintained, demand may be enough to force continued steep climbs in rental rates. However, rents are not expected to reach the highs of the mid 1990s.
-China World Trade Centre and Kerry Centre, two of Beijing?s top grade-A buildings, currently have limited space remaining, although new availability will come from China Life Building and Onward Science and Trade Centre Block 4, both in the CBD.
-Office capital values, after falling to their lowest ever recorded levels during the fourth quarter of 1999, have risen slightly in 2000 to the current average at more than US$2,000 per sq metre. Recently, space has been transacted in Sunflower Tower at USS2,500 per sq metre.
-Local companies have been the driving force in the sales market, with foreign companies preferring to lease office space.
-The soon-to-be-completed Cyber Tower and Zhongguancun Building are seeking above Yn16,000 and Yn18,000 respectively per sq metre of office space.
This article was written by Jones Lang LaSalle, a global real estate consultancy services company with China offices in Hong Kong, Beijing and Shanghai. For further information contact Robert Walker, MD Beijing office, on – 86 10 6588 1300 or by e-mail on email@example.com.
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