Knight Frank says a post-Olympic downturn is not expected in Beijing

Hong Kong, 5 August 2008: According to international property consultant Knight Frank, a post-Olympic economic slump, as witnessed in a number of previous host cities, is not expected to occur in Beijing.

Post-Olympic economic slowdowns typically occurred in cities with relatively small populations, such as Montreal (1976) and Athens (2004), rather than heavily inhabited locations like Tokyo (1964) and Seoul (1988). With a population exceeding 17 million, Beijing ranks as the second most populous Olympic host city in history recorded at the time of the Games.

Mr. Xavier Wong, Head of Research at Knight Frank, says “in host cities that saw post-Olympic downturns, Olympic venues were often under-utilised after the Games and turned into ‘white elephants’, while a collapse of public investment in infrastructure dragged down economic growth. With a burgeoning economy and a rapidly expanding population, over the longer term there should be enough domestic demand in Beijing to fill the hotels, gymnasiums and athlete’s residences constructed for the Games.”

Mr. Nick Jones, Executive Director of Knight Frank’s Beijing office, says “in a bid to showcase its economic achievements during the Olympic Games and to create enough capacity for further development into a modern metropolis, Beijing has adopted an aggressive urban development strategy over the past few years, and has strived to complete a large number of infrastructure projects before the opening of the Olympics this month. Alongside the four relatively old subway lines, four new lines have been added in the past year in an effort to ease the city’s traffic jams, and seven more lines are slated for completion between 2009 and 2013. Government planners are developing Beijing’s infrastructure to support 20 million people by 2020, suggesting that the investment boom will continue after the Olympics, sustaining the momentum of the economy.”

Mr. Jones continues, “Beijing has taken specific measures to guard against a post-Olympic bust. For instance, the Olympic Village near the 4th Ring Road North will be transformed into a high-end residential project with about 2,000 apartments. The project has already been launched for presale
and nearly 70% of the units have been sold.”
In the short term, residential prices in Beijing are likely to soften, with some developers cutting the prices of their projects to boost sales. However, Knight Frank believes the upcoming adjustment in residential prices will be less than 10%.

According to Mr. Wong, several factors will provide reassurance during the upcoming market adjustment. First, home prices in Beijing have not risen as much as in Shenzhen and Guangzhou, over the past few years. Second, Beijing would not see serious oversupply of homes, given that the gross floor area of completed residential units dropped by 22.8% in 2006 and 15.5% in 2007. Third, residential supply is likely to further decline if prices soften, given that the costs of all kinds of inputs including building materials, land, labour and financing have increased substantially over the past few years.

In the leasing market, the recent influx of visitors for the Olympics has pushed up luxury residential rentals by 10% and serviced apartment rentals by 25% over the past 12 months. Local tenants have been forced to terminate their leases, to give way to short-term visitors willing to pay extremely high rents. After the Games, units vacated by these short-term tenants are expected to be taken up by returning tenants, and rental prices should return to normal levels, according to Mr. Jones. 

In the hotel sector, the occupancy rates of four and five-star hotels in Beijing hovered at around 70% between 2004 and 2007. To cope with the demand during the Olympics, a large number of hotels were completed in the past year, dragging down the average occupancy rate of four and five-star hotels to about 60% in the first half of the year. Knight Frank says the occupancy rate would remain at a relatively low level immediately after the Olympics, but would take just two years to return to a normal level of about 70% amid continual growth of visitors from other Mainland cities and provinces.

As the political and economic centre of China, Beijing has long been a magnet for migrant population. Between 2002 and 2007, the capital attracted 1.33 million people from other parts of China and by the end of 2007, Beijing’s migrant population totalled 4.2 million, some 25% of the city’s total population. The influx of migrants has intensified pressure on Beijing’s infrastructure and social amenities in recent years, resulting in serious traffic congestion and considerable strains on other urban facilities. Beijing needs to improve its town planning and infrastructure even without Olympics.

“We feel positive about the medium-term future of Beijing’s property market after the Olympics,” says Mr. Nick Jones, Executive Director of Knight Frank’s Beijing office. “The extensive upgrade of infrastructure and social amenities in Beijing in the run-up to the Games will attract more migrants from other parts of China as well as more expatriates from overseas, sustaining the long-term growth of property prices in the city.”

Population of Olympic Host Cities