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HONG KONG AND MACAU, 13 January 2012 – Rent of Grade A office and warehouse property increased throughout the whole of 2011:
Office – 2011 a record year for the Beijing office market with rents rising by 41% y-o-yAccumulated new supply in 2011 reached approximately 750,000 sqm, almost the same level as that of 2010. However, new supply from lease-only projects was less plentiful, and in the case of Finance Street there was no new supply at all. This year saw 11 Grade A office projects completed, four projects, were for self-use, accounting for 42.0% of the new supply. As such, total Grade A stock increased to approximately 6.2 million sqm.
Demand in the Beijing office market remained strong throughout the year, despite uncertainties and turbulent external factors impacting domestic business growth. Total net absorption hit 860,000 sqm, indicating that 2011 was another big year in the Beijing office market in the vein of 2010. From 1Q11 to 3Q11, healthy momentum in the growth of demand for office space continued. In 4Q11, although global financial market turbulence and the European sovereign debt crisis cut the world’s economic growth forecasts, the Beijing office market still experienced increasing demand, albeit with a slightly lower growth rate than in previous periods. Indeed, some hotspot sub-markets, such as Finance Street, have a number of clients waiting in line for any surrendered space.
In addition to demand for self-use buildings, mostly from domestic companies, leasing demand continued to be driven by financial services companies, consulting firms, law offices, and high-tech and manufacturing companies. Even with 750,000 sqm entering the market, overall vacancy rates continued to drop and remained at an all-time low on the back of the strong demand from both self-use owners and tenants. As of end-2011, the vacancy rate reached 9.1%. In various sub-markets most vacancy rates dipped below 10.0%, while Finance Street, East Second Ring Road and Zhongguancun saw vacancy rates even lower, within the range of 0.0- 5.0%. Two new projects, with a total GFA of about 140,000 sqm, entered the market at the end of the fourth quarter and one of these developments is not in a prime business location. Without these buildings, the total vacancy would be 7.0% with a commitment rate of 96.4%.
For the year as a whole, average net effective rents were significantly boosted by continuing strong demand and limited supply, especially in the traditional principal sub-markets of the CBD and Finance Street. In 4Q11, rents increased to RMB 293 per sqm per month (based on GFA), up 9.1% q-o-q in 3Q11 and 41.4% y-o-y.
Seven projects are expected to be completed in 2012 offering a total GFA of approximately 420,000 sqm. Leasing-only projects will account for half of the new supply, while the remaining space is reserved for self-use owners. Despite reduced economic growth forecasts and record high rents, overall demand in the Beijing office market is expected to experience stable growth in 2012 with net take-up over 400,000 sqm. The overall vacancy rate is likely to continue to remain low, at around 9%, while rent is projected to grow by the lower pace than 2011.
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