Urban office rents get 'A' for growth

BEIJING - Office rents for Grade A space in key cities saw strong growth last year, even as the domestic and global economies slowed, industry consultancies said on Tuesday.

Statistics from Jones Lang LaSalle Inc (JLL) show that Grade A office rents in Beijing rose 41 percent year-on-year in 2011. For Shanghai, the figure was 17.4 percent.

Another international real estate consultancy, Savills PLC, said that Beijing Grade A office rents jumped 44.2 percent in 2011, while those in Shanghai increased 11 percent.

"Demand in the Beijing office market remained strong throughout the year, despite uncertainties and turbulent external factors impacting domestic business growth," said Qin Xiaomei, chief researcher at JLL (Beijing).

Average net effective rents got a boost from continued strong demand and limited supply, especially in the traditional principal submarkets of the central business district and Finance Street in Beijing.

"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," Qin said.

As of the end of 2011, the vacancy rate was 4.2 percent in Beijing's Grade A office market, the lowest in the past decade, according to Savills.

According to Frank Marriott, senior director of Savills' Real Estate Capital (Asia-Pacific), the office markets in Beijing and Shanghai are still the favorites for international institutional investors, especially core real estate funds that prefer relatively lower risks.

"However, there are few investment opportunities for international funds in these two office markets as the supply is limited and the competition is fierce," Marriott said. "International opportunistic funds are looking at the residential sector, seeking opportunities in second-tier cities with those cash-strained property developers."

This year, seven projects are scheduled for completion, with a total gloss floor area of about 420,000 square meters (sq m). Leasing-only projects will account for half of the new supply, with the rest taken up by self-use owners, according to JLL.

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 exceeding 400,000 sq m, JLL said.

"The overall vacancy rate is likely to remain low, at about 9 percent, while rents are projected to grow more slowly than in 2011," said Qin Xiaomei.

Wang Ying in Shanghai contributed to this story.