MATURING and THRIVING Beijing Business Park Market Overview and Outlook COLLIERS RADAR BUSINESS PARK | RESEARCH | BEIJING | 28 MAY 2020
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COLLIERS RADAR BUSINESS PARK | RESEARCH | BEIJING | 28 MAY 2020 Cassie Gao Senior Analyst| Research | North China +86 10 8541 1184 [email protected] Lu Ming Director | Research | North China [email protected] MATURING AND THRIVING Beijing Business Park Market Overview and Outlook COLLIERS RADAR BUSINESS PARK | RESEARCH | BEIJING | 28 MAY 2020 Summary & Recommendations R&D 14.3million sq After more than 20 years of development, expenditure: metres six mature business park submarkets have RMB 18.7 billion The total stock of Beijing’s business park taken shape in Beijing. Shangdi and market, organized across six submarkets: Wangjing-jiuxianqiao, the two most mature This ranks as one of the top R&D spenders in Shangdi and Beiqing Roads in Haidian District, business parks in Beijing, are considered China. We expect this high spending to elevate Wangjing-jiuxianqiao and Sihui in Chaoyang the best locations for tech companies, the quantity and scale of high-tech companies District, Fengtai on the 4th Ring Road, and BDA which are the top demand drivers for and employees in Beijing. outside the 5th Ring Road. business parks. Meanwhile, other submarkets with more diversified industries, RMB130.5 2.1 million such as Beiqing Road, Fengtai and BDA, have also experienced rapid development per sq metre sq m in the past few years. per month 2.1 million square metres (22.6 million square > Tenants: Business park rents are lower feet) of business park space is scheduled to than offices. With improved property By the end of 2019, Beijing’s average business enter the market from 2020 to 2024. We accessibility in business parks and park rent reached RMB130.5 (USD18.6) per expect 2021 to be the year of peak supply, with continuous improvement of supporting square metre per month, decreasing gradually over 1.1 million square metres (12.2million facilities, we recommend that tenants in since a large supply over the past two years. square feet) of new supply entering the market. office markets who are more sensitive to rents to give greater consideration to With fewer tradable assets in core areas, and developers wanting to diversity their revenue business parks. sources, Beijing business parks are attracting more attention from both investors and developers > Landlords: The outbreak of COVID-19 due to their relatively high yields, simple business models and stable rent returns. Especially accelerated the development of online during the pandemic, high-quality projects in the business parks like Shangdi area are more services industries such as online resilient to downside risks. The tenants in these projects are relatively less affected by the education and online medical care. We pandemic. This has pushed business parks in these areas to be a hot spot for investors. recommend landlords seize the The en-bloc sales in Beijing’s business park market have been more active in the last three years opportunity to capture expanding as there were still undervalued projects on the market. We expect more deals by both end-users demand from these industries. and investment institutions when the high-quality projects start entering the market in the next > Investors: We recommend investors pay two years. more attention to business park Source: Beijing Statistics Bureau, Colliers International. Note: USD1 to RMB7.09 as of end Q1; 1 square metre = 10.76 square feet. properties like Shangdi with relatively Rent = Net effective rent (management fees and rent free periods excluded). simple business model and stable returns. 2 COLLIERS RADAR BUSINESS PARK | RESEARCH | BEIJING | 28 MAY 2020 OVERVIEW OF OPPORTUNITIES, CHALLENGES AND RECOMMENDATIONS IN BEIJING’S BUSINESS PARKS Recommendations Opportunities Occupiers > As the average Grade A office rent is more than three times of the average > Upgrade specifications for new developments rent of business parks, price-sensitive office occupiers, especially from > Refurbish existing properties industries supported by favourable policies, are well-positioned to benefit from business parks that offer improved accessibility and upgraded facilities. > Rising subway accessibility: > For technology occupiers, Shangdi should be considered first, since it has – 2019 year-end: 699 km, 23 lines already attracted many anchor tenants from the technology industry. – 2020 year-end: 1,000 km, 28 lines However, due to a low vacancy rate and high rents in Shangdi, tenants can consider other submarkets if they require large spaces on limited budgets. > Favourable policies to attract tenants For example, BDA also attracts artificial intelligence companies with incentive > Industrial agglomeration policies. With a prime location and improved facilities, Wangjing-jiuxianqiao offers good value for tenants who care more about working environment and accessibility. > Occupiers should pay attention to the latest industrial policies and regional planning in each business park in order to make appropriate leasing decisions. Challenges Property owners > Unbalanced submarkets > With more tenants concerned about their work environment, we recommend landlords upgrade their facilities to meet tenant needs, such as – Submarkets such as BDA and Fengtai are providing canteens and recreation space. In addition, we recommend suffering from high vacancy rates. We expect landlords upgrade existing tenant profiles and secure anchor tenants in order those sub-markets to have large supply in the to attract more potential occupiers after the pandemic. future, while others enjoy strong demand with limited future supply > We recommend investors stay informed about the latest regional planning and related policies in order to adjust their investment strategies and seek > Policy optimal investment opportunities accordingly. Active investment markets – The uncertainties of policies towards property such as Shangdi and Wangjing-jiuxianqiao continue to present attractive transactions options for investors looking for capital appreciation and stable rental returns. 3 COLLIERS RADAR BUSINESS PARK | RESEARCH | BEIJING | 28 MAY 2020 BUSINESS PARKS: A DEFINITION RECENT POLICIES RELATED TO Colliers defines Beijing business parks based on four dimensions: BUSINESS PARKS :Table 1: Definition of Beijing business parks: > There is a lead entity controlling the majority of the Beijing’s > Improve the development and planning, with enough authority management standard to affect the masterplan, positioning and supply 2016.03.28 Thirteenth Five-year plan of Beijing business balance of the area. parks Controlled > There is a lead entity that has the motivation for the continuous improvement of the public Development facilities/services of the area. / Developers' Objective 2017.09.29 > Defined Beijing as China’s Beijing’s technology and innovation master plan centre > Occupiers' tax output and industry positioning will impact the landlord's/seller's preference and the commercial terms directly > The area has clear and executed tax incentives and The proposal to > Set the access criteria, industry subsidies 2017.12.31 accelerate the lease terms, land-use formation of a term and prohibit en Occupiers’ > The area has a clear industry positioning and cluster high-end economy bloc and strata-title Considerations of prestigious enterprises (eg. Top 30 companies in sales of business parks their sector) 2018.03.23 Positive and Negative Lists for > Transform land-use policies > The area is connected by subway or light rail line. And the planned use to support development of the station is within 15min walking distance of developing high-tech and strategic projects industries > There are supporting retail and restaurant in the area Real Estate and > Apart from office and retail, the buildings can support Supporting Amenities production and R&D functions 2018.09.26 Catalogue of > Raise barriers for new prohibited and restricted construction of offices industries in and incubators for start- > Located in Beijing's mature industrial function zone Beijing up companies in central areas of Beijing > Formed a sizable development cluster Location and Size Source: Colliers International Source: Beijing Municipal Government, Colliers International Starting from Beijing's 13th Five-Year Plan in 2016, Beijing is planning the reasonable and healthy development of Beijing's industrial planning through step-by- step policy guidance. In 2017, Beijing redefined its development priorities to help Beijing grow into a national science and technology innovation centre. Starting in 2017, Beijing began to issue specific policies for the development of business parks and guide the development of business parks toward more high- tech industry, while encouraging low-end business parks to carry out industrial upgrading. The government also released a clearer definition of preferred industries through revised Positive and Negative lists that were issued in 2018 and 2019. 4 COLLIERS RADAR BUSINESS PARK | RESEARCH | BEIJING | 28 MAY 2020 MACROECONOMIC INDICATORS Figure 3: Average rent and change YOY, 2017-2019 (RMB/ sq m / month, %) The IT and finance industries are the pillars of demand for Beijing office and business parks, as the two combined account for almost 30% of the city’s GDP. 150 Average Rent Change YOY As the technology and innovation hub for China, Beijing’s R&D expenditure 4.7% 6% reached RMB187.1 billion (USD26.7 billion) in 2018, a YOY increase of 18.4%. 145 140 4% Beijing ranks as one of the top R&D spenders among all cities in China, which 134.4 should help to elevate the quantity and scale