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CHINA’S COMMERCIAL REAL ESTATE MARKET SEES INCREASING DEMAND AND RAPID DEVELOPMENT
20 Oct, 2011, Beijing
According to Cushman & Wakefield’s Q3 MarketBeat Reports, the commercial real estate market in major tier 1 and 2 cities is seeing rapid development, reflected by the increase in office rental and retailers’ fast expansion. Global economic uncertainties are slowing down the recovery process in the West, while making the Asia Pacific region, particularly China, a more pre-eminent market for global property investors. We note the following trends:
- OFFICE: In Beijing, fuelled by limited new supply and robust demand for high-quality office space, the office market saw a sharp increase in rental in Q3. The average net effective rental of Grade A offices rose to RMB454/sq.m/mth, up 24% from Q2. In this quarter, Beijing knocked Shanghai off the top spot as the city with the highest Grade A office rental in China. In Shanghai, the strong demand for expansion of foreign corporations and limited market supply drove the Grade A offices’ average net effective rental up to RMB412/sq.m/mth, increasing by 5.4% Q-o-Q. In Chengdu, with some new projects entering the market, the average net effective rental of Grade A offices experienced a slight slip to RMB154.8/sq.m/mth, 0.85% lower than that of Q2. With the expansion of both domestic and international firms in Guangzhou, the city’s office market is developing at a rapid speed, pushing the average net effective rental of Grade A offices up to RMB208/sq.m/mth, a 3.5% increase Q-o-Q. In Shenzhen, the market demand is mainly focused on strata-titled, high-quality office space, with the average net effective rental of Grade A offices increasing by 5.6% Q-o-Q, to RMB284/sq.m/mth.
Andy Zhang, Managing Director of Cushman & Wakefield China operations, commented on the future prospects of the office market, “In Q3, Beijing recorded a new high in Grade A office rental, thus exceeding that of Shanghai and leading the office market on Mainland China . This marks a new phase in the robust growth of Tier 1 cities’ office markets. We predict that such trend will continue in the foreseeable future. However, in some provincial capital cities, the office market is going to see a huge influx of new supply, and the rental level will likely go down.”
- RETAIL: In Beijing, Wangfujing submarket continues to lead the Beijing’s retail market with the highest rentals in the city, with prime asking rentals of RMB2,200/sq.m/mth. In 2012, a number of major new shopping centers will be completed, and some of these such as Swire’s Indigo, and Huamao City have been received warmly by retailers, and will offer an excellent tenant mix. There are a number of other centers, however currently experiencing some difficulties in leasing, and while construction may be near completion, some planned openings in 2012 may experience delays due to poor leasing progress.
In Shanghai, fast-fashion brands have been expanding aggressively, showing strong confidence in the city’s retail market. Gap and Forever 21 were active as well as new market entrants including A&F and Hollister. In Q3, as demand remains high but supply limited, Shanghai saw a modest increase in rental rates. Average asking rentals for ground floor prime retail space climbed to RMB1,828/sq.m/mth.
In Chengdu, the development of the retail market continues rapidly with a large number of major shopping centers in the pipeline including MixC and Raffles City due for completion in 2012 as well as Joy City due for completion in 2013.
James Hawkey, Executive Director of Retail for Cushman & Wakefield, said, “Retailers continue to be confident about the China market. They are looking for quality space in well conceived and well managed centers, and while there are many developments ongoing, retailers are frustrated by a lack of quality space. In many Chinese cities, we are starting to see problem shopping centers, which are often poorly designed and managed and have been unable to create an attractive tenant mix. We anticipate more problem centers emerging over the coming year, where inexperienced developers are undertaking over-ambitious projects.”
- INDUSTRIAL: Industrial real estate rentals in Asia, in contrast to the rest of the world where the occupational market deteriorated in the majority of markets, jumped over 5% last year, according to Cushman & Wakefield’s Industrial Space Across the World 2011. The report, which monitors rents and total occupancy costs in 53 countries, reveals that Jakarta, Beijing and Singapore performed very strongly in 2010. As the world’s fastest growing industrial locations, rents in Beijing surged by 18% in 2010, 2nd only to Greater Jakarta area in Indonesia which grew by 21.7%.
Andy Zhang, managing director of Cushman & Wakefield China operations, commented on the China market, “In 2011, the industrial property market will maintain its positive growth due to limited supply and strong demand. This trend will easily be spotted in cities such as Beijing, Shanghai, Chengdu, Shenzhen and Chongqing. In the meantime, the Chinese government is applying tighter control on total industrial space distribution. But various investments, especially those related to domestic demand, will be increasing. This trend will continue for a period of time in the future.”
- INVESTMENT: Influenced by the government’s strict control on the residential sector, the market has been seeing a capital flow to the commercial real estate sector, especially in some tier 1 and tier 2 cities where stringent regulation and control measures are still in place. With global economic uncertainties mounting, China remains a pre-eminent market for global property investors. In the past 12 months, the investment team of Cushman & Wakefield China, led by Jack Ye, National Director of Investment has successively completed 5 transactions, totaling more than RMB6.5 billion.
Jack Ye said, “With the government control on the residential sector continuing to tighten, real estate developers are beginning to experience difficulties in funding, which will lead to an increasing demand for capital raising. Currently, the residential market has seen quite a few reserve price transactions, resulting in a pessimistic outlook for the residential market. However, this is a great opportunity for developers with positive cash flow to purchase land or M&A. Overall, China is a prime location for global investors. In terms of commercial real estate, we are seeing an increasing appetite for high-quality projects in prime locations, as well as for retail space in tier 2 and tier 3 cities. We anticipate that SOEs and insurance companies with strong fund-raising capabilities will become the majority of investors for office space.”
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