New Economy "Barometer": Where Is The Next Wave Of Energy Demand For Office Buildings In Beijing?

Beijing office market is experiencing the "dark moment" in the past decade.

According to the statistics of many institutions, the rent level of office buildings in Beijing is continuing to decline and the vacancy rate remains high due to the impact of the new crown pneumonia epidemic. Among them, CBRE CBRE CBRE CBRE released data that in the second quarter of this year, the overall vacancy rate of high-quality office buildings in Beijing rose to 15.5%, the highest since the third quarter of 2010.

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The prosperity of the office market is closely related to the economic situation and enterprise confidence. Affected by the epidemic, many enterprises have slowed down the pace of expansion and reduced the rental area, and the transaction frequency of Grade A office building market has decreased significantly.

But the epidemic does not seem to be the main factor affecting office buildings in Beijing. According to a report recently released by Jones Lang LaSalle, in the past decade, 75% of newly completed office buildings in Beijing went out of use in the first year. However, after entering 2019, the rental demand of the office market has decreased significantly. The outbreak of the new crown epidemic this year has further aggravated the existing downward trend.

Jones Lang LaSalle classifies the demand levels of Beijing office market and sorts out the demand changes in the past decade. Economic development has spawned a number of industry waves, which once made the Beijing office market continue to prosper. At least, the growth rate of office buildings will slow down next year and the market will still be impacted by the decline of office buildings. However, enterprises in new infrastructure fields such as artificial intelligence and cloud computing are expected to help the market return to the upward track.

Lease demand rises and falls with the tide of new economy

As one of the earliest office building markets in China, Beijing office building is becoming more and more mature, and the source of rental demand is stable and diversified, which is conducive to resist the risk brought by the sharp decline of single industry. According to the demand characteristics and levels, Jones Lang LaSalle divides Beijing office market demand into three categories: cornerstone demand, driven demand and kinetic energy demand.

Among them, as the foundation of the demand structure, the rental area of cornerstone demand accounts for 51%. This kind of demand is composed of low-risk and high-profile enterprise tenants, including central enterprises, state-owned enterprises, multinational companies, private enterprise giants, and the world's top 500 enterprises. This part of the demand is stable and lasting, and it pursues a reasonable rent level in the market.

The proportion of rental area driven by demand accounted for 28%, mainly domestic and foreign-funded small and medium-sized companies. This kind of demand performance is low-key, although not as stable as the former, but still has a greater impact on the market.

The demand for kinetic energy accounts for 21%. This kind of demand mainly comes from emerging industries. The rapid expansion of office space and the strongest ability to pay are the key factors to lead the market rent growth and improve the rental rate. However, due to the instability of the development of many industries in the expansion period, the risk is relatively large.

Jones Lang LaSalle pointed out that since 2014, emerging industries have been constantly forming, integrating and changing, and have continuously brought new kinetic energy demand, which ensures that the rental demand in the market continues to be strong.

Specifically, since the middle of 2014, P2P loan companies have begun to enter the Beijing office rental market on a large scale, and become an important driving force to promote the market rent growth. At the end of 2015, there was a sharp contraction in the regulation of newly added "P2P" industries, but the "e-banking" regulation continued to shrink. By the beginning of 2016, the demand boom caused by P2P industry has rapidly cooled down.

At present, only highly compliant P2P companies are still renting in Grade A office buildings in Beijing. The person in charge of the Investment Promotion Department of a grade A office building in the international trade area told the 21st century economic report that in recent years, small P2P companies have occasionally rented in the area, but the scale of leasing has been significantly smaller than before, and the liquidity is relatively large.

Almost at the same time, the rapid expansion of Internet industry giants led the development of technology, media and communication (TMT) industry. Alibaba's Beijing headquarters in Wangjing and Google in Zhongguancun have both triggered an industrial agglomeration effect, attracting many Internet start-ups to swarm into the surrounding areas.

According to statistics, in Zhongguancun, a traditional high-tech industrial cluster in Beijing, the rent of Grade-A office buildings has increased significantly from 297 yuan / square meter / month in 2014 to 322 yuan / square meter / month in 2016.

In the second year of 2018, the rise of domestic funded IT enterprises will usher in a new wave of software industry. Represented by the rise of byte skipping, in 2018, the IT industry surpassed the traditional financial industry and became the largest source of rental demand in Beijing's high-quality office building market.

Since 2019, the economic downturn, market pressure, office rental demand is relatively slow. But according to Jones Lang LaSalle, it companies are still expanding in the market. "Up to now, leasing transactions in the IT industry account for about 40% of new leasing transactions in the market."

The development of sharing economy also provides strong demand for Beijing office market. From 2015 to 2018, online car hailing, bike sharing, joint office and other sharing economic fields have risen one after another, and some industry giants in their subdivided fields are still the main demand of the market. However, due to the fierce competition in the industry, the demand brought by the sharing economy was once very unstable

In 2016, Didi travel acquired Uber China, which made Uber quit renting the whole floor office space in Wangjing area in the second year; in 2017, after obtaining a round C financing of up to $130 million, ofo rented 5000 square meters of area in the ideal building in Zhongguancun, but it withdrew the lease only one year later due to operational difficulties; the joint office field expanded rapidly in 2017 and 2018, but as of 2019 At the end of the day, more than 100 joint office stores in Beijing have been closed

The continuous industrial wave has given rise to a large number of demand and promoted the prosperity and development of Beijing office market. According to statistics, by the end of 2019, the rent level of high-quality office buildings in the Financial Street area and CBD area ranked third and ninth in the world respectively. Compared with other cities in China, the average rent level of high-quality office buildings in Beijing is 374 yuan / square meter / month, which is far higher than that of Shanghai, and has been leading the national office building market for a long time.

Technology finance industry may become the main force of new demand

2019 is considered to be the turning point of Beijing office market. Due to the lack of emerging kinetic energy demand in the market, and the impact of economic downward pressure and the upgrading of Sino US trade friction, the demand of Beijing office market has shrunk, the rent has dropped, and the vacancy rate has also risen.

By 2020, the vacancy rate of Beijing office market will continue to rise as the new crown pneumonia epidemic further affects the economic recovery. According to the statistics of several institutions, as of the second quarter of this year, the vacancy rate of Beijing's office market was around 15%, the highest since 2010, and the rent dropped by about 6.8% year-on-year.

Specifically, the decline rate is not the same in different regions. According to the statistics of Jones Lang LaSalle, due to the stable rigid demand, in the past 20 years, the rent of the Financial Street area has only experienced a decline of less than 5% due to the global financial crisis in 2009; the rent decline of Zhongguancun area in the market downturn period is also within 5%. In contrast, in the CBD, East Second Ring Road, East Chang'an Street, the third embassy area and other areas, in the face of the rising vacancy rate, the highest rent drop even reached 15%.

But in Jones Lang LaSalle's view, the current market is still in a relatively stable operating range, the current pressure is not unbearable. In short, in the current difficult period, the biggest problem facing the market is the relative lack of emerging kinetic energy demand, and sufficient demand for cornerstone can ensure the market to maintain relative stability.

In 2019, some large-scale state-owned banks will expand on a large scale, which will boost the market to a certain extent.

But just as all kinds of kinetic energy demand pushed the market to prosperity, the final recovery of the market still depends on a new wave of kinetic energy demand. Analysts generally believe that with the support of policies, key industries such as science and technology and finance will continue to enjoy dividends, and are expected to become the "main force" of new demand in Beijing office market.

According to Jones Lang LaSalle's research, the new energy demand in the future will come from three aspects: 1. In view of the strong development momentum of the science and technology industry during the epidemic period and the strong policy support, enterprises in new infrastructure fields such as artificial intelligence, cloud computing and 5g will usher in development opportunities; 2. The epidemic has brought significant development opportunities to the medical and health industry and insurance industry, and also promoted online games And the development of live video; 3. Driven by the successful holding of the "Beijing Fair" upgraded to "service trade fair" and Beijing's expansion of financial industry and modern service industry, the demand of professional service industry and financial industry will continue to be strong.

"Looking forward to the next wave of Beijing office market, the IT industry will occupy an important position in the future market map, which is driven by both policy and epidemic Jones Lang LaSalle pointed out that Beijing still has the opportunity to create and attract new demand and help Beijing's office building market back on the upward track.

However, before the next round of demand for kinetic energy, the impact of the epidemic and the slowdown of economic growth will continue to exert pressure on the market. As the market is still in the stage of rent adjustment, it is expected that rents will continue to decline in the short and even medium term.

Jones Lang LaSalle believes that as the impact of the epidemic situation and economic slowdown gradually dissipates, the downward trend of Beijing office building market rent is expected to continue until the end of 2021 or early 2022. After a stable period of 2022 and 2023, the influx of more kinetic energy demand will push the rent back to the upward cycle in 2024.

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