According to a new report by Jones Lang LaSalle, rent of Grade A office and warehouse property increased throughout the whole of 2011:

Office –

Continued strong demand and ongoing limited available space has significantly boosted rents.
Retail –

Strong demand from domestic and international retailers pushed the overall vacancy rate down in 2011.
Residential –

The average rent of serviced apartments increased by 12.5% y-o-y in Beijing. The sales area of high-end apartments decreased significantly in 2011, and the average price marginally decreased.
Investment –

The majority of domestic institutional investors have been purchasing office buildings for self-use, whereas international institutional investors have favoured shopping centres and business park properties.
Hotel – Optimistic Performance Outlook brings New Opportunities for Hotel Investors

Retail

An increasing number of retailers have been competing in the Beijing retail market and several projects underwent repositioning to strengthen their competitiveness.

In 2011, three shopping malls, China World Mall Phase Ⅲ, Shine City and Galleria, opened inside the Fifth Ring Road in Beijing .The total GFA of these projects amounted to 140,000 sqm, an 82% y-o-y decrease in new supply. Due to the repositioning and upgrading of many core shopping malls, there is more available space for retailers in core areas and this impacted the leasing progress of new projects. In addition, many new projects which were due to open by year-end 2011 postponed their launch dates to 2012.

With the increasing disposable income of local residents, consumer demand for high-end products and services increased in 2011 and as a result, retailers of jewellery, luxury brands and supermarkets were busy expanding and refurbishing. In 2011, several shopping malls in the CBD, Wangfujing, and Xidan commercial areas upgraded their tenant mixes and shopping environments. A number of luxury brands and brands without an existing presence in the Beijing market took the place of under-performing brands. Around 40 luxury jewellers and clothing brands opened in China World Mall Phase Ⅲ, 92 international brands opened in Shinkong Place and many creative high-end brands, such as MIUMIU and Alexander Wang, held their grand openings in the Village North. Furthermore, high-end supermarkets such as OLE and BHG have been expanding quickly in core commercial areas.

Favourable prices and popular designs meant that fast fashion retailers, such as UNIQLO, ZARA, H&M and GAP continued expanding in Beijing’s shopping malls and community malls. In 2011, ZARA along with its sister brands, Stradivarius and Massimo Dutti, opened 7 new stores and GAP and H&M each plan to open two new stores in Beijing in 2012. Local fashion brands, Urban Renewal and MC Jeans, have also been busy selecting sites facilitate their expansion. As a result of this strong demand, net absorption in Beijing’s Retail market reached 310,000 sqm in 2011.

With aggressive expansion by retailers, the overall vacancy rate maintained its downward trend in 2011, dropping to 10% in 4Q11, a 3.9% decrease y-o-y. Many mature projects which performed well raised their rents several times throughout the year, leading to an overall increase in the average rent in the Beijing retail market. Net effective retail rents reached RMB 701 per sqm per month (based on NLA), a 12.3% rise y-o-y.

In 2012, 14 new projects will be launched, adding 800,000 sqm of GFA to the total stock. These new projects are mainly located in the Chaoyang and Dongcheng Districts. Projects undertaken by international developers such as CapitaLand and Swire are experiencing good preleasing rates of around 70%-85%. Optimism about the future of Beijing’s retail market has meant that a number of luxury brands and brands new to Beijing have signed leasing contracts in the Wangfujing area. Jones Lang LaSalle predicts that retail demand will continue to be strong in 2012, while the growth rate of net effective rents will slow due to discounts offered in newly launched projects. Vacancy rates are expected to increase due to the abundance of new supply.

Residential

In 2011, the average rent of serviced apartments increased by 12.5% y-o-y in Beijing. The sales area of high-end apartments decreased significantly and the average price marginally decreased.

In 2011, the average rent for serviced apartments increased by 12.5% in Beijing. There was no new supply for serviced apartments in the whole of 2011 and one project was strata-title sold and thus exited the leasing market, resulting in a decrease in total supply to 8,095 units. In addition, the number of available houses in the market has further decreased due to the refurbishment of several projects. Leasing demand remained strong throughout the year despite uncertainties and the turbulent world economy impacting domestic economic growth. China continues to be a very important market for MNCs and many expatriate managers and engineers relocated to Beijing in 2011. The fourth quarter is the traditional low season for the leasing market, but leasing demand remained stable and in some areas, such as the CBD, Sanlitun and the Third Embassy area, available housing is limited. Much of the leasing demand continued to be driven by automobile, medical, energy and manufacturing companies. The strong demand and the limited supply resulted in a new vacancy rate low of 7.2% as of the end of 2011. Landlords increased rents substantially, and many tenants found available housing to be too expensive. In 4Q11, rents increased 12.5% y-o-y to RMB 190 per sqm per month (based on GFA). Looking forward to 2012, three serviced apartment projects are expected to be completed, offering 580 units which will alleviate the shortage of available housing. However, impacted by the reduced economic growth forecasts for 2012, it is expected that some MNCs may slow down their expansion in China and some may limit the number of expatriate employees in order to reduce costs. Overall demand will remain stable in 2012, and the vacancy rate will increase a little due to new supply, while the average rent will experience an increase of around 10%.

Influenced by the purchase restriction policy, the transaction area of Beijing high end apartments decreased greatly in 2011 to 1.18 million sqm, a decrease of 21.4%, and average prices decreased marginally. Buyers aiming to improve their living conditions are the major consumers in the current Beijing high end apartment market. Such purchasers, in order to meet the stringent purchase requirements must have readily available capital and not rely on bank credit. Influenced by the slowing down of sales and a stricter examination and approval process, the average transaction price decreased slightly in 2011 reaching RMB 40,141 per sqm in 4Q11, a decrease of 2.2% y-o-y. Thus, the high apartment price has been influenced to a lesser extent than prices in the mass residential market due to good locations and more competitive products. New supply of high end apartments is expected to increase in 2012, with the price of luxury apartment projects in prime locations expected to remain stable. However, high end apartment projects located outside the Fourth Ring Road are expected to start offering incentives to potential purchasers in the face of continuing fierce environment, which will improve the transaction area in 2012.

Hotel

Optimistic Performance Outlook brings New Opportunities for Hotel Investors.

Following a year of occupancy recovery, 2011 was an even more exciting year for Beijing hotel owners. Proving its pivotal role as the capital of China’s growing economy, Beijing has seen strong growth in the tourism and hotel sector. Year-to-date November 2011, international tourist arrivals to Beijing increased 5.8% to 4.84 million. On top of continued growth in corporate and leisure travel already observed in 2010, corporate meeting business (including incentive travels) has returned in 2011.

Demand growth, together with limited new supply, has created an environment conducive for hotel performance to record solid improvement. In 2011, Beijing hoteliers shifted growth focus from occupancy to room rate. According to year-to-date November 2011 data, Beijing’s five-star hotel sector recorded an occupancy rate of 66.9% (+5.3 p pt) and an average daily rate of RMB 1,141 (+9.0%). This corresponds to a growth of 17.8% in Revenue per Available Room (RevPAR). Room rate growth was even more pronounced in the luxury sector, showing not only hoteliers confidence in raising rates, but also declining rate sensitivity amongst travelers.

As new supply remains limited and the demand outlook positive, we expect Beijing’s high-end hotel market to continue to improve trading performance. “In the medium to long-term, Beijing is expected to see additional supply of office-space, creating potential for continuous growth in hotel demand, whilst new hotel development in Beijing’s core areas is likely to be limited. This gives rise to opportunities that can be favorable for asset dispositions” says Hans Galland, Senior Vice President, Jones Lang LaSalle Hotels. “Existing hotel owners should evaluate their hotel asset strategies to capitalize on the upward trend in market performance.”

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