Beijing's office space remains hot item for international investors

Industry experts continue saying that despite the recent depreciation of the renminbi, investors remain highly interested in Beijing.

A research by international real estate consultancy company Savills says despite further rental compression, limited prime investment stock combined with steady demand from both domestic and overseas investors is expected to support Grade A office capital values.

Supported by limited prime investment stock, combined with a steady demand from both domestic and overseas investors, Beijing's Grade A office capital values jumped to an average of 69,700 yuan per sq m in the third quarter, up 0.3 percent quarter-on-quarter and 7.8 percent year-on-year, Savills statistics showed.

"International investors are still quite interested in office buildings in first tier cities like Beijing and Shanghai despite the depreciation of the renminbi. But the supply is very limited," said Grant Ji, senior director of the investment department of Savills.

The present condition and future outlook of the Beijing office market is highly attractive to both domestic and foreign investors. The rising rental trend continued in the quarter, with rent increasing across most submarkets.

Pent-up demand, meanwhile, is expected to get some relief from future supply. For example, in the CBD, where expansion has slown down due to a lack of leasable space, the Core Expansion project is expected to grow the market with a series of quality, new buildings.

"Investors are looking at the big picture ahead – not only do new and exciting prospects exist in mature submarkets, but also in emerging ones like Tongzhou; we recently announced plans to build the city out eastward here are only expected to bring more opportunities to the market," said Kevin Qin, Head of Capital Markets for North China at JLL in Beijing.

According to Qin, Foreign investors have taken on a wait-and-see approach since the depreciation, unwilling to make any aggressive plays before they can fully digest how the move will ultimately influence their return on investments.

Domestic investors, meanwhile, continue to be active in searching the market for value-add opportunities.

"Foreign fund managers in particular have temporarily put the brakes on, unwilling to rush into any deal given the new lay of the land," said Qin. "While not much has changed for domestic investors, who remain highly interested in Beijing at this time, the continued lack of tradable assets on the market is limiting the number of deal opportunities."

Besides office space, investors are quite interested in the logistic sector. Frank Chen, Executive Director of Head of CBRE Research China, said first tier cities (especially Shanghai) and Chengdu are the top performing markets thus presenting themselves as the most attractive destinations for investment.

"In terms of logistics property development, GLP dominates the arena and in fact has significantly shaped the logistics property landscape in China over the past decade. However, in China where funding options are very limited, newcomers might face an uphill battle in competing with more established players," said Chen.