Office cooling: vacancy rate rising, rent falling, new supply rising substantially

 Office cooling: vacancy rate rising, rent falling, new supply rising substantially

According to the data provided by Gaoli International, due to macroeconomic factors such as the slowdown of tertiary industry growth in 2019, the vacancy rate of Grade A office buildings in Beijing reached 11.5% at the end of the first half of 2019, the highest level in eight years; the average net effective rent was 398.8 yuan per square meter per month, which was 0.6% lower than that at the end of 2018. % New supply of 160,000 square meters, the total stock of 832,000 square meters.

In the past eight years, the office market in Beijing has been unbalanced, showing a one-sided owner market. With the slowdown of demand and the increase of supply, it has gradually changed to the tenant market. Yan Jihai, managing director of Gaoli International North China, said.

Vacancy Rate Rising and Rent Falling

In order to rent vacant office buildings faster, developers also provide rent-free monthly policies to attract tenants. Ms. Li, Rental Department of Beijing Jintai International Building, said.

The CBD business circle not far from Jintai International Building is the main area for Xiao Guo, a real estate renter and seller in Beijing. Since March this year, the vacancy rate of CBD business circle has gradually increased, and now it has reached about 20%. Compared with property owners, small owners are more anxious to rent out the empty property on hand, thus offering lower prices and better bargaining. Some owners agree as long as they have customers and the prices are easy to talk about. Dont be too low. Xiaoguo told reporters that he helped the tenants reduce prices and successfully concluded several orders. He also observed that many tenants were diverted because some new office buildings in Tongzhou and Yizhuang were cheaper. Now there are many empty houses, customers have a lot of choices, they want to rent cheap first. Xiaoguo said.

Data from Dai Deliang Bank show that in the second quarter of 2019, China Life Finance Center, located in Beijings Central Business District, was officially launched as the first project of Zhongfu District. With the introduction of new projects and the impact of rent refund and reduction of some enterprises, vacancy rates in the whole city and the five core areas rose to 8.9% and 5.6% respectively. Among them, the vacancy rate of financial street, Zhongguancun and other core business circles remains at a low level. Among them, the vacancy rate in Zhongguancun was 1.2%, up 0.8% compared with the first quarter.

The rising vacancy rate of Grade A office buildings in Beijing has also put pressure on rent growth and reduced rent return.

On June 28, Pan Shiyi announced a sales estimate of about 7.8 billion self-owned properties. He told 21st century economic reporters that the low rate of return on office rent was one of the reasons why he sold his property. Our rate of return on property is 3%, but the interest rate on bank loans is 4 points, and the rate of return on rent is not as good as that on bank loans. In addition, SOHO Chinas current assets are too single, mainly office products, after sale, reserve something else better. Pan Shiyi said.

It is understood that the current domestic commercial real estate industry rent return rate is only 2% - 3%, it is difficult to achieve the European and American developed countries 5% average asset return level. According to the data provided by Shibang Weilishi, the rate of return on rent of office buildings in first-tier cities is about 3.8% to 4%.

Significant increase in new supply

Some analysts pointed out to economic reporters in the 21st century that the main reason for the high vacancy rate and the decline in rents was the substantial increase in new supply of office buildings. Xie Chen, director of China Research Department of Shibang Weilishi, said that in recent years, a large number of new supply has been concentrated in some second-tier cities in the central and Western regions, resulting in an increase in the overall vacancy rate.

According to the analyst, the national average vacancy rate is about 20%. The vacancy rate of some cities in central and Western China and some cities in North China is 30% or even more. The vacancy rate in first-tier cities is relatively healthier. The vacancy rates in Beijing and Guangzhou are around 10% or less, while Shanghai is relatively higher, with the vacancy rate above 15%, because the supply of office buildings in Shanghai is relatively abundant in recent years, including the next few years. According to the latest data from Weber, it is expected that in the next six months, more than 770,000 square meters of new supply will enter the market, vacancy rates will further increase, and rents will also be under pressure.

Since 2018, great changes have taken place in the composition of enterprises in Beijing Internet Financial Center. Many Internet financial companies have moved out of office buildings, which has also led to a large number of office buildings immediately vacant. According to Gaoli International, the net absorption of Grade A office buildings in the first half of 2019 was about 96,000 square meters, which was 69.3% lower than that of the previous half year, and 69.6% lower than that of the previous half year. Speaking of the reasons for the decline in demand, Gaoli International believes that last years massive investment in Internet enterprises stimulated the demand for office buildings, and demand blowout growth, while this years investment fell sharply; the other main driver is joint office, which absorbed a surprising amount of market last year, but this years joint office almost. Expansion ceased. In the process of investigating the 21st Century Economic Reporters, the leasing managers of many Grade A office buildings expressed their cautious attitude toward the Internet financial customers to the 21st Century Economic Reporters. In the first exchange, they asked the customers which industry they came from. Xiao Jiang, a renter and seller of Jinchangan Building, made it clear that the building had strict control over financial investment and fund companies. If the company was not qualified enough and had no background of state-owned or state-owned enterprises, it would hardly be mentioned. By contrast, technology companies are more popular.

In addition, the current economic situation is also one of the influencing factors. The decline of office rent in the core area also reflects the current economic situation to a certain extent.

Bulk trading is still active

So far, the domestic office market has shown a more interesting situation: on the one hand, the economic downturn, rent downturn, office vacancy has increased; on the other hand, the commercial market, large-scale transactions, especially foreign purchases, are very active.

According to the statistics of Shibang Weilishi, in the first quarter of 2019, the amount of bulk transactions in the national commercial market exceeded RMB 53 billion yuan, and the proportion of foreign capital increased further to 50%, the highest in a single quarter since 2016.

Yan Han, deputy director of the Capital Market and Investment Services Department of Gaoli International North China, gave his views. He believes that the influx of foreign capital into Chinas commercial real estate is more optimistic about the value-preserving and value-adding capabilities of urban assets such as Beisheng, Guangzhou and Shenzhen. Obviously, overseas capital still has confidence in Chinas economy.

At the same time, influenced by the trade situation, foreign investors believe that the current exchange rate of RMB is undervalued. For them, it is a better time to enter the Chinese market.

Gaoli International estimates that the total new supply of office buildings in 2019-2022 will be about 1.68 million square meters. Among them, the new supply of office buildings in 2019 totaled about 810,000 square meters, the highest in nearly 10 years. It is expected that the supply peak in the second half of this year will further push the average vacancy rate to a record high and lower the average rent. Market trends will help enterprises continue to reduce office rental costs.

We suggest that tenants with rental needs should seize this favorable opportunity in order to enjoy high-quality office space with preferential rental conditions. At the same time, office owners should also anticipate changes in the market and adjust rental strategies in time to achieve rental performance. Yan Jihai said.

Source: Responsible Editor of 21st Century Economic Report: Zhong Qiming_NF5619