Renovation trend in real estate means more opportunities in Beijing

The trend for Beijing city to keep renovating and upgrading old property rather than increase construction of new ones will bring more opportunities than challenges to investors and real estate operators, an expert said.

Since the focus of Beijing's urban development is transforming from "ever increasing inventory" to "maximizing value from current stock", it should develop a more efficient and more productive market, said Anthony McQuade, managing director of global real estate consultancy Savills Northern China.

While a wave of new stock is expected to be put into the market in the next few years -- most of which will be centered on the CBD core extension and Beijing Lize Financial Business District -- a fiercer competition can be foreseen in the short to medium term, which may lead to higher vacancy rates and lower rentals, according to McQuade.

But at the same time, the property will feature better building quality, infrastructure, software and services, which will add pressure on existing stock to be more proactive in improving the overall environment of their buildings if they want to compete at the premium end of the market, he said.

Also, they will have to be more flexible on rents and incentives to quality tenants to maintain high levels of occupancy, he added.

"Longer term, if the government maintains their current policy, after the market absorbs the new supply, we expect to see increasing capital values and rentals again," he said.

"Concerning that Beijing is the capital of China, though there may be short-term market disruptions, logic would dictate demand will stay strong for companies to have a presence here. I would think the opportunity is very obvious."

According to McQuade, abandoned or underperforming buildings are basically market failures, which are unable to achieve some reasonable economic or social benefit.

"Often it could be due to legal and financial issues surrounding the ownership or it could be a building that was neither designed nor built appropriately for the market it was intended."

McQuade said the construction freeze will force investors and developers to rethink previous business models.