Savills Q2/2012 Beijing Overview

Grade A office market

- Grade A office leasable stock fell to 9.07 million sq m as two projects were converted to self-use and no new developments were handed over during Q2/2012.
- Net take-up fell by 43.8% quarter-on-quarter (QoQ) in Q2/2012 to 60,000 sq m as limited vacant office space restrained demand from being converted into transactions.
- Emerging markets accounted for 61% of net take-up as companies searched for lower costs office options.
- City-wide vacancy rate fell by 0.6 of a percentage point (ppt) QoQ to 3.4%, down 2.5 ppts year-on-year (YoY), as a result of limited new supply and continued demand.
- Grade A office rents increased by 3.8% in Q2/2012 to an average of RMB305.3 per sq m per month, up 27.8% YoY.
- Rental growth slows as companies, in response to 60-100% rental increases at lease renewal, search for affordable buildings in decentralized locations.
- Four leasable projects located in BFS and Lufthansa areas are scheduled for completion in the second half of 2012, feasibly adding 146,000 sq m of leasable office space to the market.
- The city-wide vacancy rate is expected to hover around 3%-4% by the end of 2012, as demand is still expected to outpace supply. Concurrently rental growth is expected to slow to 15%-18%.

Retail market

- Beijing retail sales grew by 13.1% YoY to RMB302.0 billion in the first five months, supported by growing disposable incomes and consumer expenditure.
- One new mid-to high-end shopping mall was launched onto the market in Q2/2012, adding 86,000 sq m and expanding Beijing mid to high-end retail stock to 8.12 million sq m. A further two shopping malls held their soft openings in the second quarter.
- Aggressive retailers’ expansion and new market entrants pushed the city-wide mid to high-end shopping mall vacancy rates down by 1.6 ppts in Q2/2012 to 10.6%, despite new supply.
- The majority of traditional retail areas and Grade A retail areas continued to witness low vacancy rates ranging from 0% to 8%.
- Mid to high-end shopping mall first-floor rents increased by 1.7% in Q2/2012 to an average of RMB859.8 per sq m per month, up 13.9% YoY.
- In the second half of 2012, a substantial amount of new supply is expected to put downward pressure on city-wide occupancy rates and consequently constrain overall rental growth.

Residential leasing market

- No new high-end residential developments were handed over to the leasing market in Q2/2012.
- Serviced-apartment, Grade A apartment and high-end villa occupancy rates rose by 1.5, 4.4, and 2.3 ppts QoQ to 89.8%, 89.3% and 92.1 respectively as a result of increased demand from overseas corporate tenants.
- Serviced apartment, Grade A apartment, and high-end villa rents rose by 4.5%, 3.2% and 2.0% QoQ to an average of RMB194.1, RMB135.0, and RMB128.6 per sq m per month, respectively. The substantial growth was a result of increased demand with the absence of new supply.
- Two new projects are scheduled for completion in Q3/2012, namely the 154-unit East Gate Plaza Apartment in August, and the 134-unit Jinyu Global Trade Centre (GTC) International Apartment in September.

Residential sales market

- First-hand mass-market supply and transaction volumes increased substantially in the second quarter.
- New supply increased by 78.7% QoQ to 2.5 million sq m, while transaction volume rose 86.2% QoQ to 3.4 million sq m.
- The first-hand mass-market residential price index fell by a combined 0.1% in April and May.
- Two new projects, West Chateau Phase III and Ocean Crown, added a total of 278 units to the Grade A apartment market, almost four times the amount in Q1/2012. At the same time transaction volumes increased by 118.3% QoQ to 596 units.
- Grade A apartments transaction prices rose 1.2% in Q2/2012 to an average of RMB57,666 per sq m.
- Chang’an No.1 (中骏绿洲庄园), Royal Spring Villa and Ocean Lavie launched a combined 112 new units to the high-end villa market, while the total transaction volume rose by 163% to 242 units.
- High-end villa transaction prices increased by 4.1% in Q2/2012 to an average of RMB39,264 per sq m.

Sales & investment market

- Grade A office capital values increased by 2.8% QoQ to an average of RMB59,696 per sq m, up 25.7% YoY.
- Grade A office gross yields rose 7 basis points (bps) in Q2/2012 to an average of 6.14%, up 4 bps YoY.
- Three significant en-bloc transactions were concluded in Q2/2012 for a total consideration of RMB3.7 billion. Both domestic and overseas developers/investors remained active in the market.
- The investment market is expected to pick up in the second half of the year, as negotiations are drawing to a close on a number of projects in prime locations.
- Continued loosening of credit combined with the lowering of interest rates are signs that the government are trying to stimulate economic growth generating concern that the economy is slowing along with confidence that the government is taking steps to address it.
- The land auction market remains in doldrums with transaction volumes down 50% QoQ at just RMB4.8 billion, while 70% of land plots were transacted at their reserve prices.

Information provided by: Savills Research & Consultancy