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Cushman & Wakefield: China Experienced Rapid Growth in Commercial Real Estate
19 Jul, 2011, China
- Office rental maintains an upward trend, domestic companies are showing higher affordability
- Domestic and international brands are speeding up their expansion
- Industrial space rental saw sharp increase in major cities
- Investment activities are fuelled by the economic recovery and restrictions in the residential sector
According to Cushman & Wakefield’s Q2 MarketBeat Reports, the overall recovery of China’s economy is fueling the development of China’s commercial real estate market. The booming trend is not only seen in tier 1 cities like Beijing, Shanghai and Guangzhou, but is also reflected by the thriving commercial real estate markets in tier 2 cities. We note the following trends:
- OFFICE: In Beijing, the growing demand for high-quality office space and limited new supply drove up the average net effective rental of Grade A offices to 366 yuan/sq.m/mth, 13.6% higher than that of Q1 2011. However, if we take into account the currently available rental spacein the market, the net effective rental is as high as 401 yuan/sq.m/mth. In Shanghai, the rapid expansion of both domestic and international corporations has been the primary force driving the rental up. The net effective rental of Grade A offices saw a Q-o-Q 7.7% increase, reaching 391 yuan/sq.m/mth. According to Cushman & Wakefield’s Q2 Shanghai Office MarketBeat Report, the city is experiencing a trend of emerging companies choosing to relocate outside of the central city area to capitalize on lower rental and larger office space. In Chengdu, international companies are speeding up their expansion in tier 2 cities, pushing up the rental level in some of the main business districts. The Grade A office rental has gone up to 154.6 yuan/sq.m/mth with a 2.3% Q-o-Q increase. In Guangzhou, due to the large quantities of office space that came into the market in Q1, the rental growth rate has declined. The net effective rental of Grade A office space has increased by 4.0% to 201 yuan/sq.m/mth. In Shenzhen, the office market is witnessing a growing number of domestic companies searching for high-quality office space, thus, pushing the Grade A office rental up to 269 yuan/sq.m/mth with a 6.3% increase from last quarter.
Andy Zhang, Managing Director of Cushman & Wakefield China operations, commented on the future prospects of the office market, “Beijing is leading the tier 1 cities in China to a new phase of fast growth in the office market. And we do not see any sign of this trend slowing down, therefore, corporate occupiers should prepare themselves for a higher-rental office market. In some tier 2 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, the rental of prime retail space has been stable. Despite new supply entering the market in the future, the retail market is flourishing and the rental will likely maintain its upward trend. In Q2 2011, Wangfujing submarket led the Beijing retail market with the highest rental in the city measuring2,400 yuan/sq.m/mth. In Shanghai, the retail market has witnessed more and more international retail brands setting up their first store in China. Prime retail space rental has gone up to 1,821 yuan/sq.m/mth in some leading submarkets. In Chengdu, with the Disposable Income Per Capita growing and domestic and international retail brands speeding up their expansion, the retail business is booming..
James Hawkey, Executive Director of Retail for Cushman & Wakefield, said, “Retailers are become increasingly confident about the China market, with many now seeing strong profits. This confidence in the market means that both local and international retailers are continuing to expand rapidly and many brands are starting to take more control of their Chinese operations, favoring more direct owned stores.”
- 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 toGreater 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: Due to the government’s strict control over residential real estate, a lot of investment entered the commercial real estate sector, especially in some 1st and 2nd tier cities where residential is facing further restrictions. In Chengdu, there have been a couple of major investment transactions in the commercial real estate sector. The Central Point – an office building located in the Renmin South Road was sold to Ping An Insurance by Shui On Construction And Materials Ltd. in September 2010 for RMB 718 million.
Also, with the return on investment decreasing in major cities and with strict regulations imposed on foreign capital, more and more tier 2 cities are experiencing an influx of foreign investment. In June, Macquarie purchased four floors of the Galleria Chengdu, a prime shopping mall that entered the market in 2010 with a total GFA of 53,619 sq.m. In the last 6 months, the investment team of Cushman & Wakefield China, led by Jack Ye, National Director of Investment, has successively completed 4 transactions, totaling more than RMB4.5 billion yuan.
Jack Ye said, “In recent years, we have definitely seen a lot more interest in tier 2 cities in terms of investment. China is a prime target market for foreign institutional investors. With the economic recovery continuing and the market’s needs for commercial real estate increasing, investment activities will continue to increase.”
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