Beijing office sector logs record performance in 2021

Beijing's office market registered a record-breaking performance last year as demand surged after the disruption caused by the COVID-19 pandemic, and this may offer more expectations for 2022, industry experts said.

The net absorption of the capital's Grade A office space reached about 1.02 million square meters in 2021,5.7 times higher than that of 2020. It marked the second time the data exceeded 1 million after 2010, a report released by real estate services provider Savills said in early January.

Demand came mainly from information technology and finance companies, which contributed 41.7 percent and 21.9 percent, respectively, of the total transaction area, the report said.

Technology, media and telecom companies such as Tencent, Byte-Dance, Alibaba, Huawei, Meituan and Amazon contributed to several new bulk lease transactions last year, of which the rental area is larger than 5,000 sq m, said Li Xiang, head of the research department of Savills North China.

Another report by global real estate agency Colliers International said Beijing's office vacancy rate fell to 15.1 percent by the end of 2021, down 4.4 percentage points year-on-year.

As a result of growing demand from top internet companies, four of the Grade A office markets in the city－Financial Street, Zhongguancun, Wangjing and the area of Ya'ao－recorded a vacancy rate lower than 10 percent.

Yan Quhai, managing director of Colliers International North China, said the surge in demand is expected to keep the vacancy rate at a low level. The 19.4 percent vacancy rate in the fourth quarter of 2020 is likely to be the peak level in the following three to five years.

The drop in the level of office rents stabilized in the second half of 2021. The average monthly rent reached about 340.4 yuan ($53.4) per sq m in the fourth quarter, down 2.9 percent from the end of 2020, which was lower than the average drop of 8 percent in 2020, the Colliers report said.

Some submarkets in Beijing, such as Wangjing, Jiuxianqiao and the Central Business District, showed growth in rent, the report said.

The strong demand, especially from the domestic TMT industry, has helped boost net absorption in 2021 to the highest level in the last decade, with the vacancy rate falling to the level seen in late 2019 before the pandemic, and this largely led to improved market confidence, said JLL.

"This may see overall rents hit bottom, before gradually rising in the following quarters. Nevertheless, it remains to be seen whether such strength in demand recovery, as witnessed with the unprecedented net absorption by the end of last year, can continue throughout 2022," said Michael Zhang, director of office leasing for JLL Beijing.

With the recovery of Beijing's commercial real estate investment market continuing through to year-end, the 2021 total sales volume exceeded 60 billion yuan with nearly 60 transactions recorded. The sales figure represented the second-highest in the past five years, rising by a notable 35 percent from 2020.

Office properties remained hot in 2021, accounting for 56 percent of the total transaction volume. In the first half of 2021, SK Tower sold for 9.06 billion yuan, making it the highest-priced single-asset deal to close since 2019. The total transaction volume for retail properties rose 34 percent year-on-year, with Brookfield's acquisition of Yuehui Vanke Plaza drawing great interest in the market, according to the JLL.

For Grant Ji, head of capital markets of CBRE Northern China, the negotiation of some transactions recorded last year began before the pandemic but was suspended afterward, thus contributing to the surge in transactions last year.

Meanwhile, foreign investors are very active in the market, demonstrating their confidence in Beijing's commercial real estate sector in the long run. For instance, overseas capital accounted for 62 percent among the overall transactions in the fourth quarter of 2021, according to CBRE statistics.

"More investment opportunities will pop up this year as more property developers are seeking financing channels. Industrial parks, logistics and statistics data are expected to draw more attention," said Ji.