Residential Market
- Cooling measures will continue in both Shanghai and Beijing, making the residential market less appealing to investors, more of whom will turn to the commercial market.
- Inventory of saleable homes in Shanghai and Beijing has reached a historical level with a total area of 9.55 million sq m and 12.75 million sq m respectively. It will take another 6 or 7 quarters to absorb current saleable inventory with the Q1 2012 absorption rate.
- In the luxury residential markets of Beijing and Shanghai, new home sales plunged in volume and price in the second half of 2011.
- Given the strong wait and see atmosphere in the sales market in both cities, sales prices in the mass market will decrease by at least 10% and prices in the luxury market will drop by 5% in the short to medium term.
- We expect residential investment opportunities in Shanghai and Beijing to remain centered in the traditional luxury residential areas and CBD areas, such as Financial Street, Dongzhimen, Lufthansa and CBD areas in Beijing and the Former French Concession, Xintiandi, Lujiazui Riverfront and Huamu areas in Shanghai.
Office Market
- As of 2011, Beijing has become the most expensive location in China with an annual rent of USD 56.05 per sq ft, followed by Shanghai at USD 49.16 per sq ft, ranking them the 19th and 28th most expensive cities in the world.
- New office supply in the next four years in Shanghai and Beijing is to reach 3.48 million sq m and 2.33 million sq m respectively, accounting for 42% and 30% of the existing office stock.
- Office rents started to recover in early 2009 in Shanghai and Beijing and the rent has increased 12% and 46% respectively in 2011.
- Both cities have witnessed consecutive decreases in office vacancy rates in the past four years. Even though the rent in Beijing has seen the fastest rise globally and the fastest in Beijing’s history, in the last 12 months the vacancy rate dropped 15% to 3.5%.
- Benefitting from lower rents and convenient transportation, office buildings in decentralised areas have lured more enterprises in Shanghai and Beijing out of the CBD areas, providing the companies a cost saving of up to 40%.
Graham Zink, Managing Director of the Knight Frank Shanghai office, comments, “Tenants are becoming increasingly cost conscious and demand is softening due to concerns of a potential slow-down in China and the ongoing European sovereign debt issues. Despite this, many MNC’s are looking to decentralise and moving forward with expansion plans, upgrading premises and can realise rental savings between 20-40% as a result. Landlords’ bargaining power is strengthening as there is limited new supply on both sides of the river in the core CBD areas which will allow continued rental growth in 2012 of between 6-10%.”
Mark Sullivan, Managing Director of the Knight Frank Beijing office, comments, “The office market will have limited supply and a low level of leasable area in the next year, with the overall vacancy rate estimated to decrease to 3.0% by the end of 2012. Soaring rents will continue to push some tenants out of core commercial areas while rental levels will increase 25% in 20120.”