Slowing Economy, Rapid Development Give Beijing Office Market Indigestion
Beijing is home to some of the world’s priciest offices, even as a slowing Chinese economy nibbles away at demand for such premium work spaces. That confluence conspired to push vacancy rates for Beijing office and industrial-use space to highs not seen in years, according to the latest quarterly data released Wednesday by global real estate services firm Jones Lang LaSalle Inc. (JLL).
Vacancy for Grade-A office space surged more than 4 percentage points to 11.3% in last year’s fourth quarter, marking a high not seen since 2010 and more than double the rate from just a year earlier. Another JLL report issued earlier this week showed that Beijing’s Finance Street and Central Business districts were among the world’s 10 priciest places to rent office space, ranking third and ninth, respectively.
Much of China’s premium office space has been built over the last 20 years, as the country’s booming economy created demand from a new generation of homegrown private companies and multinationals setting up local operations. At the same time, many of China’s older state-owned companies have traded up to such spaces as they attempt to become more corporate. But the aggressive build-out combined with a slowing economy is putting pressure on rents.
“Overall leasing demand continued to contract in the slow economy,” JLL said of the prime office market. “As a result, the transaction volume … shrank by 25% year-on-year at end-2019.”
Concurrently, the vacancy rate for Beijing industrial space also reached a multiyear high of 3.7% in the fourth quarter — more than seven times the 0.5% rate seen for most of 2018. JLL said that third-party logistics companies remained major tenants for such space at the end of last year, citing a groundbreaking for an airport logistics park for industry giant SF Express as a sign of new activity.
“Still, downward economic pressures continued to impact the market, and there were cases of tenants downsizing as strategies were adjusted due to shrinking business,” JLL said. “Prime locations were less impacted than more remote areas.”
Contact reporter Yang Ge (firstname.lastname@example.org; twitter: @youngchinabiz)
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