"Dark Moment" Of Beijing Office Buildings: Vacancy Rate Reaches A New High In Ten Years

Since the third quarter of this year, many office building tenants in Chaoyang District of Beijing have been receiving leaflets to promote office buildings in CBD, Financial Street, Wangjing and other areas, including grade A office buildings. According to the intermediary, the current price of office buildings in the core area of Beijing is "more appropriate", and prospective tenants can consider relocation.

According to the list of the world's most expensive office buildings in 2020 released by Jones Lang LaSalle, Beijing Financial Street and CBD are ranked third and seventh respectively. Now, some office buildings in these two areas have to be rented by way of flyers. It can be seen that the situation is not optimistic.

Due to the superimposed influence of factors such as large supply, industrial structure adjustment and new crown epidemic, Beijing office market is experiencing "dark moment".

According to a report recently released by Colliers International, the vacancy rate of Beijing office market will reach 19.4% in 2020, a record high in nearly a decade. At the same time, the rental level of the office market dropped from 383 yuan / month · square meter at the end of 2019 to 351 yuan / month · square meter, a decrease of 8.4%, which also reached a new high in nearly 10 years.

In order to reduce the vacancy rate, many owners rent by way of preferential price. The competition between office buildings is fierce, which can be called as unprecedented.

The agency believes that although market demand is recovering strongly in the fourth quarter, the market performance of next year is still not optimistic due to the continuous increase of supply.

Competition for tenants

The outbreak of the new crown epidemic at the beginning of the year is the biggest "black swan" event in Beijing office market. Due to the impact of the epidemic on the expansion and recruitment of enterprises, the market demand has been greatly reduced.

A large enterprise signed a lease agreement with the property owner in early December last year and planned to move after the Spring Festival, property management personnel of an office building in Beijing International Trade Area told 21st century economic report. However, due to the impact of the epidemic, the company finally abandoned the relocation plan and chose to continue to work in the lower cost Shuangjing area.

From the second half of this year, as the epidemic situation has gradually been effectively controlled, the demand for office building market has gradually recovered.

Yan quhai, managing director of Colliers International North China region, pointed out that on the one hand, this was due to the concentrated release of the demand suppressed by the epidemic situation in the second half of the year, and on the other hand, it was also due to the initiative of office building owners to provide more competitive leasing conditions for enterprises.

It is understood that in order to attract tenants, many office buildings have taken the initiative to reduce the rent, which has reduced the market rent level by 8.4% this year.

"Such a reduction in rent is in line with market expectations. With limited new demand, the competition among the market's existing tenants will become more intense, and enterprises will become more sensitive to changes in office rental costs in the recession. Such fierce competition exists not only between sub markets, but also between different levels of office buildings. " Yan said.

He pointed out that during the outbreak, tenants moved from Grade A to grade B office buildings. But then, when class A office buildings provide more competitive rental conditions, there is also a phenomenon of enterprises returning to class a buildings. The competition between owners can be seen.

However, due to the large gap in the early stage, the trading volume of the whole year's market is still low. According to the data released by collier international, after excluding self use and pre rental area, the net absorption of Beijing office market this year was less than 30000 square meters, a new low since the record.

Beijing office market vacancy rate is high, rent decline, there is a bigger background, that is, in the past two years, the market has been in a state of oversupply.

It is understood that since 2018, the supply of Beijing office market has entered a peak. However, since 2019, the demand has not expanded synchronously, or even shrunk for a time, which also leads to the increasing imbalance between supply and demand.

Collier international pointed out that the new supply and demand ratio of Grade A office building market in Beijing has remained within 2 times for a long time, but the imbalance between supply and demand has become prominent since 2019. In 2020, when the outbreak of the epidemic, the new supply-demand ratio will rise to nearly five times.

Affected by this, the office market rent has been adjusted for three consecutive years from the peak in 2018, with an adjustment rate of nearly 13%.

History of demand change

2019 is considered to be a turning point in the Beijing office market, largely due to changes in the demand structure.

According to the demand characteristics and levels, Jones Lang LaSalle divides Beijing office market demand into three categories: cornerstone demand, driven demand and kinetic energy demand.

Among them, as the foundation of the demand structure, the rental area of cornerstone demand accounts for 51%. This kind of demand is composed of low-risk and high-profile enterprise tenants, including central enterprises, state-owned enterprises, multinational companies, private enterprise giants, and the world's top 500 enterprises. This part of the demand is stable and lasting, and it pursues a reasonable rent level in the market.

The proportion of rental area driven by demand accounted for 28%, mainly domestic and foreign-funded small and medium-sized companies. This kind of demand performance is low-key, although not as stable as the former, but still has a greater impact on the market.

The demand for kinetic energy accounts for 21%. This kind of demand mainly comes from new industries. The expansion of office space is fast and the payment ability is the strongest. It can lead the market rent growth, but the risk is relatively large.

Jones Lang LaSalle pointed out that since 2014, with the promotion of policies, emerging industries such as P2P, Internet and sharing economy have continuously formed, merged and changed, and continuously brought new kinetic energy demand, which ensured the continued strong rental demand in the market.

From the source of funds, during this period, domestic capital demand increased, and gradually replaced foreign capital, becoming the main demand of Beijing office market.

However, by 2019, due to policy changes and other external reasons, P2P and other industries will undergo in-depth adjustment, and there is a lack of emerging kinetic energy demand in the market. In addition, under the influence of economic downward pressure and Sino US trade friction upgrading, the demand of Beijing office market will shrink, leading to the decline of rent level and the rise of vacancy rate.

According to Jones Lang LaSalle's point of view, Beijing's office market will still generate new demand for kinetic energy. For example, artificial intelligence, cloud computing, 5g, new infrastructure, health care and insurance are all likely to become new force in the office market in the future.

But until then, the impact of the epidemic and the slowdown in economic growth will continue to put pressure on the market, and the decline in rents will continue until the end of 2021 to the beginning of 2022.

Yan also holds the same view, saying that "2021 will be a very challenging year for Beijing's grade A office market." According to preliminary statistics, it is expected that nearly 1.6 million square meters of new projects will enter the market next year (more than 900000 square meters in 2019), which will also bring unprecedented impact to the market.

He said that while the new demand in the market was recovering, sustainability remained to be seen. In the face of the continuous supply peak, the market rent will continue to decline, but the decline rate should be less than this year.

Colliers International proposed that, taking into account the steady recovery of macroeconomic growth, the effective prevention and control of Beijing's epidemic situation and the neutral release of office demand, it is expected that the imbalance between supply and demand of office buildings in Beijing will continue to intensify next year, and the market vacancy rate will reach its peak.

Sun zutian, director of the research department of CBRE's Huabei district, told 21st century economic reporter that although there will still be intensive new supply in Beijing's office market next year, under the protection of the normalization of epidemic prevention and control, as well as the overall upgrading and relocation demand in Beijing, the rising speed of vacancy rate will slow down, and the overall downward pressure on rent will also be eased to a certain extent And.

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