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Beijing's office market faces growing pressure

By Hu Yuanyuan (chinadaily.com.cn)
Updated: 2008-12-12 16:07

Beijing's office market will witness sustained pressure from the discrepancy between immense new supply and the slow-down of market demand for 2009, a report from the CB Richard Ellis said today.

Due to the worsening global economy, plans for moving and expansion were postponed on request from corporate headquarters, while companies from industries severely influenced by the crisis began to cut their office budgets.

Special coverage: Coping with Financial Crisis Related readings:  Office space demand softens in Q3  Measures proposed to help property firms  Property price growth in major Chinese cities drops to three-year low  China eyes more property prop up

In particular, the office budgets of some well-established enterprises were cut by over 50 percent, necessitating their move to Grade B offices outside the core areas of the central business district (CBD). The report stresses that this budget-cutting trend is becoming more widespread.

"In the third quarter, demand in the Beijing office market declined beyond market expectations, as indicated by the market take-up of only 134,000 sq m, down both 38 percent quarter-on-quarter and 14 percent year-on-year," said Qin Xiaomei, research chief at CB Richard Ellis' Beijing branch.

The financial sector has been more severely hit by the global financial tsunami than other sectors, and companies from traditional industries have stepped in as key tenants of prime office buildings in Beijing.

Meanwhile, the rising supply and declining demand has accelerated the already growing vacancy rate of prime offices in Beijing, as indicated by the present rate of 18.5 percent in the first three quarters, a figure 5.1 percent higher compared with the same period last year.

In the fourth quarter of 2008, six office projects will be completed in Beijing, supplying a total office area of 451,000 sq m. In addition to the supply of 795,000 sq m completed in the first three quarters, it is estimated that the total supply for this year will exceed 1.2 million sq m, making 2008 the year with the largest total supply for prime offices in Beijing.

"The vacancy rate in the market will continue to increase further," said Qin.