Beijing – October 2019

MARKET IN MINUTES Investment Savills Research

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RESEARCH

James Macdonald Senior Director +8621 6391 6688 james.macdonald@ savills.com.cn

Vincent Li Associate Director Beijing +8610 5925 2044 vincentx.li@ savills.com.cn

CENTRAL MANAGEMENT

Investment market sees significant activity Anthony Mcquade Several transactions were completed during the quarter, marking a significant Managing Director Northern China pickup in activity compared to the same period last year. +8610 5925 2002 anthony.mcquade@ savills.com.cn • The first-hand strata-title office market received 185,600 • A total of 14 land plots were transacted during Q3/2019 for a sq m of new supply in Q3/2019, up 6.1% quarter-on-quarter combined consideration of RMB29 billion, marking a 12.4% INVESTMENT (QoQ). Total transaction area reached 235,700 sq m, up QoQ decline. Out of the total transacted land plots, eight Spring Cao 15.3% QoQ. were designated for residential and two for commercial Senior Director usage. Beijing • New supply in the first-hand strata-title retail market +8610 5925 2048 reached 127,400 sq m in Q3/2019, up a significant 144.6% spring.cao@ savills.com.cn QoQ. Total transaction area reached 117,700 sq m, down

36.1% QoQ. Savills plc Savills is a leading global real “The investment market in estate service provider listed on • Activity in the en-bloc investment market was brisk in the London Stock Exchange. The company established in 1855, has Q3/2019. A total of nine deals were concluded during the Beijing saw several a rich heritage with unrivalled growth. It is a company that leads quarter, registering a combined consideration of RMB18.4 rather than follows, and now has transactions close in Q3/2019. over 650 offices and associates billion, up 184% QoQ. throughout the Americas, Europe, Stable capital values and Asia Pacific, Africa and the Middle East. This report is for general • Of the total transacted en-bloc investment deals, office informative purposes only. It may room for appreciation meant not be published, reproduced or projects and development sites were the most popular quoted in part or in whole, nor may it be used as a basis for any acquisition targets. Office projects alone accounted for a that the office asset class contract, prospectus, agreement total consideration of RMB14 billion. or other document without prior continued to be the most consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability • Grade A office capital values registered an average of popular acquisition target for whatsoever for any direct or RMB87,186 per sq m by the end of Q3/2019. Meanwhile, consequential loss arising from its investors.” use. The content is strictly Grade A office gross reversionary yields tightened by 0.02 of copyright and reproduction of the whole or part of it in any form is a percentage point (ppt) to 5.06%. VINCENT LI, SAVILLS RESEARCH prohibited without written permission from Savills Research. savills.com.cn/research 1 Investment

100% equity share in land plot D-03/04 in GRAPH 1: First-Hand Strata-Title Office Sales, OFFICE SECTOR Lize Financial Business District for a total Q1/2014 to Q3/2019 The first-hand strata-title office market received 185,600 sq m of new supply in consideration of RMB5.828 billion. The plot 30 Q3/2019, up 6.1% QoQ, though this was down was previously owned by China Fortune Land 53.5% year-on-year (YoY). Total transaction Development and is zoned to be developed 25 area reached 235,700 sq m during the quarter, into Grade A office towers. up 15.3% QoQ, though this was down 16.3% •BBMG acquired Pangu Plaza Tower 5, an international Grade A office tower located in 20 YoY. Total consideration reached RMB6.52 Asia & Olympic area, through a government- billion, down 2.5% QoQ and 30.4% YoY, assisted sale for a total consideration of 15 respectively. Average transaction prices RMB5.187 billion. decreased 15.5% QoQ and 16.9% YoY to •Baring Private Equity Asia acquired Arca 10 RMB billion RMB27,637 per sq m. Plaza in Zhongguancun Software Park in Grade A office capital values held stable at Haidian for a total consideration of RMB750 5 an average of RMB87,186 per sq m by the end million. of Q3/2019. Meanwhile, Grade A office gross 0 reversionary yields tightened further by 0.02 LAND MARKET Q1 Q1 Q1 Q1 Q1 Q1 Q2 Q2 Q2 Q2 Q2 Q2 Q3 Q3 Q3 Q3 Q3 Q3 Q4 Q4 Q4 Q4 Q4 of a ppt to 5.06%. A total of 14 land plots were transacted in 2014 2015 2016 2017 2018 2019 Q3/2019 for a combined consideration of RETAIL SECTOR RMB29 billion, marking a 12.4% QoQ decline, Source Savills Research New supply in the first-hand strata-title retail though this was up a significant 76.3% YoY. market reached 127,400 sq m in Q3/2019, up A total of eight new plots were designated 144.6% QoQ and 58.6% YoY. Total transaction for residential usage and two for commercial area reached 117,700 sq m in the quarter, down usage, while the rest will be for industrial GRAPH 2:Grade A Office Capital Values And Yields, 36.1% QoQ and 49.4% YoY, respectively. usage. Q1/2014 to Q3/2019 Total consideration registered RMB4.53 billion in Q3/2019, down 7.4% QoQ and 38.9% Capital value (LHS) Gross yield (RHS) MARKET OUTLOOK 100,000 15% YoY. Average transaction prices increased by The investment market in Beijing has 45% QoQ and 20.7% YoY to RMB38,432 per remained largely active over the last two sq m. years. A variety of properties have traded 80,000 12% hands across multiple asset classes. EN-BLOC INVESTMENT MARKET Domestic investors, international investors The en-bloc investment market exhibited and developers have all exhibited strong 60,000 9% stable performance in Q2/2019, with a total appetites for valuable assets. As they look of five deals concluded for a combined to diversify their portfolios, institutional 40,000 6% consideration of RMB4.28 billion. Activity investors have shown a preference for RMB per per sq RMB m was scattered across multiple asset classes acquiring assets with stable capital values and included office, department store, hotel, which offer room for appreciation. The 20,000 3% development site and cloud data storage investment environment will continue to see centre acquisitions. Equity transactions improvements and upgrades of commercial

0 0% were the most popular deal structure. Major real estate in Beijing as investors experiment

Q1 Q1 Q1 Q1 Q1 Q1 transactions included:

Q2 Q2 Q2 Q2 Q2 Q2 with value-add strategies and enhanced asset Q3 Q3 Q3 Q3 Q3 Q3 Q4 Q4 Q4 Q4 Q4 2014 2015 2016 2017 2018 2019 •China acquired a 100% equity share operations. Going forward, performance in in HNA Plaza from HNA Group for a total the investment market is expected to largely Source Savills Research consideration of RMB1.736 billion. mirror the activity and trends witnessed over •Ping An Life Insurance acquired a the previous two years.

GRAPH 3: First-Hand Strata-Title Retail Sales, TABLE 1: Major First-Hand Strata-Title Office Projects, Q3/2019 Q1/2014 to Q3/2019

Financial Street Greenland Central 16 PROJECT Vanke Lake Centre (Yuetan) Plaza 14

12 LOCATION Xicheng Haidian Haidian

10

8 Financial Street DEVELOPER Vanke Greenland Group Holdings RMB billion RMB 6

TRANSACTION 4 8,868 9,041 3,828 AREA (SQ M) 2

AVERAGE PRICE 0 97,264 38,778 32,884 Q1 Q1 Q1 Q1 Q1 Q1 Q2 Q2 Q2 Q2 Q2 Q2

Q3 Q3 Q3 Q3 Q3 Q3 (RMB PER SQ M) Q4 Q4 Q4 Q4 Q4 2014 2015 2016 2017 2018 2019

Source Savills Research Source Savills Research

savills.com.cn/research 2 Investment

GRAPH 4: En-bloc Investment Volumes, TABLE 2:Major First-Hand Strata-Title Retail Projects, Q3/2019 2014 to Q3/2019 Chang’an Paradise Q1 Q2 Q3 Q4 PROJECT Jinmao Plaza Shining Plaza 70 Walk

60 LOCATION Fengtai Mentougou Shunyi

50 PROPERTY TYPE Strata-title Retail Strata-title Retail Strata-title Retail 40

Beijing Capital 30 DEVELOPER China Jinmao Longfor Group

RMB billion Development

20 TRANSACTION 1,744 2,706 1,501 AREA (SQ M) 10 AVERAGE PRICE 85,150 41,888 25,396 0 (RMB PER SQ M) 2014 2015 2016 2017 2018 2019

Source Savills Research Source Savills Research

GRAPH 5: En-bloc Investment Volumes By TABLE 3: Major En-Bloc Transactions, Q3/2019 Property Type, 2014 to Q3/2019

HNA Plaza Lize D-03/04 Pangu Plaza Arca Plaza Land Plot Tower 5 Office Retail Serviced apartment Hotel Mixed-use development

Ping An Life Baring Private 70 Vanke BBMG BUYER Insurance Equity Asia

60 China Fortune Government- HNA Group Land Mapletree SELLER assisted Development 50

LOCATION Lufthansa Lize FBD Asia & Olympic Shangdi 40 PURCHASED 39,145 232,500 139,356 19,659 RMB billion 30 AREA(SQ M) TRANSACTED 20 PRICE 1,736 5,829 5,187 750 (RMB MILLION)

10 UNIT PRICE 44,348 37,605 47,707 38,080 (RMB PER SQ M) 0 2014 2015 2016 2017 2018 2019 DEAL Onshore Equity Onshore Equity Asset Offshore Equity STRUCTURE Transaction Transaction Transaction Transaction

Source Savills Research Source Savills Research

GRAPH 6: Land Transaction Volumes, 2014 to TABLE 4: Major Land Transactions , Q3/2019 Q3/2019 Q1 Q2 Q3 Q4 TOTAL CONSIDERATION 300 PLOT CODE DISTRICT GFA USAGE BUYER (RMB MILLION) (SQ M)

250 Fengtai Fengtai 216,452 Residential 7,940 China Overseas 2019 – 016

200 Shunyi China Jinmao / Shunyi 288,410 Residential 4,300 2019-018 BUCG 150 Daxing

RMB billion Daxing 173,209 Residential 3,300 2019-023 100

Daxing Daxing 100,957 Residential 3,270 China Overseas 2019-022 50

Haidian Haidian 61,700 Commercial 1,037 China Resources 2019-015 0 2014 2015 2016 2017 2018 2019

Source Savills Research Source Savills Research savills.com.cn/research 3