Grade A office rent accelerates in growth, setting a new high for the third consecutive quarter.
The Economy Signals a Cooling Trend. The economy started to show signs of cooling down with decreasing total new bank loans, a moderate increase in industrial output and a reduction of the average housing price in major cities.
Tightening bank credit policies brought about a new challenge of funding for real estate developers in China. Following the earlier move by Moody’s to cut the Chinese real estate sector’s outlook to negative in April, Standard & Poor’s move downgraded the outlook for Chinese real estate developers to “negative” from “stable” in June.
The Market Sees Exacerbated Inflation; Monetary Tightening is Expected to Continue. The government remains vigilant on the inflation situation.
The latest Consumer Price Index (CPI) for May reached 5.5% on a national level, reaching a 34-month high. Some economists predicted June’s CPI to exceed 6%.
In response, China’s central bank announced a bank reserve ratio increase for the sixth time in 2011 by 0.5%, which reached 21.5% beginning June 20th.
Office Rental Continued to Surge. Office rental kept increasing due to growing office demand and limited supply. As of June 2011, the average net effective rent of Grade A offices in Beijing market reached RMB366 per square meter a month, up 13.6%. The new high office rental rates in Beijing indicates a strong market demand with no sign of cooling down. In the meantime, overall vacancy rate decreased by 1.8% quarter-on-quarter to 4.5% in the second quarter of 2011.
Tenants are Facing Pressure of Rental Increase. The current low vacancy rate, sustainable strong market demand and limited future supply have given landlords a pricing leverage, allowing the rents to continue to set new highs this year. As a result, tenants continue to accept the rental increase due to the limited availability of office space.
Office Rental will Maintain an Upward Trend. Strong office demand and limited future supply will push up rental in the foreseeable future. Currently, available office space are mainly in high-end properties where the rental will be
driven up to even higher levels.
The foreseeable lack of office supply, which is expected to last until at least 2013, will contribute to surging rental rates in a landlord’s market. predictions are that due to the increasing rental levels, some tenants might consider relocating to suburban areas such as Wangjing or to decentralize their offices in different office buildings as a means to reduce cost.