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Beijing office rents likely to surpass Shanghai
By Cherry Cao

Growth of prime office rental space in Beijing surged by the end of June and topped rates nationwide compared with those a year earlier, a study shows.

Furthermore, a continuously tight supply over the next few years is expected to help the capital city’s prime office rentals surpass Shanghai’s in 2013, according to a half-year market review and outlook report by DTZ, part of UGL Services.

Prime office rentals in Beijing surged 46.8 percent year on year to 318 yuan (US$50) per square meter per month at the end of the first half, following 348 yuan per square meter in Shanghai.

Prices are driven mainly by strong domestic occupier demand, according to the world’s third-largest international real estate services provider.

A total of 246,400 square meters of new offices, equivalent to 3.8 percent of its total stock, were added in Beijing in the first six months of this year. That compared with new supply of 372,006 square meters in Shanghai, the most in the country which accounted for 7.4 percent of the city’s complete stock. Around 309,500 square meters were added in Guangzhou, Guangdong Province, or 13 percent of its total inventory, during the same six-month period.

This, coupled with a strong absorption of 328,889 square meters, primarily fueled by robust leasing demand from domestic companies as well as state-owned enterprises, dragged overall vacancy in Beijing to 2.45 percent at the end of June, the lowest across the country.

In contrast, Shanghai, dominated by financial institutions and multinational companies more vulnerable to external uncertainties, witnessed a much lower net absorption in the first half at 143,248 square meters.

The vacancy rate in Shanghai consequently rose quarter on quarter from 6 percent to 8.8 percent at the end of June, whereas in southern Guangzhou, it jumped to 12.7 percent at the end of the first half from 9.8 percent registered at the end of the first quarter.

Future supply

Looking ahead, Beijing will continue to see a shortage of new supply between now and 2014. Only 988,348 square meters’ new offices are scheduled to be released in the capital city in the next two and a half years, which is equivalent to 19 percent of its current total stock.

Shanghai, meanwhile, will have the largest new supply in the country with more than 3.55 million square meters’ new office space being introduced from now through 2014, equivalent to almost two thirds of its current total stock. Major projects include Shanghai Tower in the heart of Lujiazui, which will become the country’s tallest skyscraper upon completion in 2014.

Besides Shanghai, the southern Guangdong city of Shenzhen will also see abundant supply between the second half of this year through 2014. More than 1.51 million square meters of new office space will be released to the local market, equivalent to 68 percent of its total current inventory.

Rental growth forecast

As central government policies are expected to sustain economic growth amid external uncertainties, the overall office leasing demand will be rather stable across the country.

Thus, the deciding factor going forward will depend on future supply in each of the cities, DTZ said.

In Beijing, the relative supply shortage will continue to have an impact. Rental growth in the city will be the fastest in the country in the five-year horizon, rising 13 percent per year on average. For the whole of 2012, rentals will rise by 29 percent.

Shanghai, at the same time, is expected to see a comparatively moderate growth of 8 percent per year over the next five years. This year, rentals will likely gain 15 percent.

By contrast, Guangzhou, where vacancy remains at high levels, will continue to suffer a rental decrease for the rest time of the year, office rents there expected to drop 7.8 percent for the whole of 2012. However, the city’s office leasing market is likely to pick up starting 2013, given a drop in new supply, according to DTZ.

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