More deals are expected in Beijing's office market

Rent increases in recent years have complicated large tenants' efforts to control costs and they are increasingly exploring investment opportunities in Beijing, a report from international real estate consultancy JLL showed on Tuesday.

Occupiers, including foreign corporations, have shown strong interest in acquiring self-use space within Beijing's core CBD expansion area, where a number of high profile high-rise projects are currently taking shape, according to the JLL report.

The area offers unparalleled centrality as well as the opportunity for signage rights that provide visibility across a large portion of east Beijing; this is also a boost for corporations seeking strong branding in the Beijing skyline.

In addition, owner occupiers are increasingly looking at en bloc purchase opportunities in Beijing's emerging decentralized office clusters, where a major transaction of this type is expected by year-end. Limited new supply in recent years has made large blocks of available space increasingly scarce within the core areas.

"Over the next 12-18 months, large core submarket office occupiers are likely to drive investment activity in Beijing. These occupiers are increasingly turning to forward purchase routes in order to secure large blocks of space for their future operations, and we expect to see more multi-ownership structured deals," said Eric Pang, Head of Capital Markets for JLL North China.

Areas of Beijing with the largest future supply of investment grade office schemes include Lize, Wangjing and the CBD core expansion.

Although foreign and domestic institutional investors remain interested in the Beijing office market, the number of transactions involving these parties continues to be limited. Net yields are below interest rates, contributing to frequent mismatches in buyer and seller pricing expectations. Three en bloc sales and some strata title sales comprised a large-scale transaction volume of 1.6 billion yuan during the quarter. The year-to-date large-scale transaction volume increased to just 11 billion, down 55.7 percent from the same period last year.