Briefing Sales and Investment January 2014

Savills World Research Beijing

Briefing Sales and investment January 2014

Image: Galaxy SOHO, East Second Ring Road, Dongcheng district SUMMARY The en-bloc investment market remained active in Q4/2013 with five significant deals concluded for a total consideration of RMB4.3 billion. Twenty-two significant transactions closed in the whole year, bringing the total consideration to RMB26.3 billion.

 Beijing’s Grade A office capital transactions in 2013 to 22 and a total RMB182.2 billion in FY2013, a six-year values stabilised at an average of transaction value of RMB26.3 billion. high. RMB62,400 per sq m in Q4/2013, up 0.9% year-on-year (YoY).  Several office and retail developments located in prime areas “Beijing’s land market continued  Grade A office reversionary gross were under en-bloc sale despite total yields fell by 2 basis points (bps) investment stock being limited. to grow in the fourth quarter quarter-on-quarter (QoQ) to 6.02% as rents fell by 0.6% QoQ in Q4/2013.  Beijing’s land market was very with 68 land plots transacted, active in Q4/2013, with 68 land bringing a total consideration of  Five significant deals were plots transacted bringing a total concluded in Q4/2013, with a total consideration of RMB66.7 billion, up RMB66.7 billion.” Joan Wang, Savills consideration of RMB4.3 billion. This 36% QoQ. As a result, the transaction Research brought the total number of significant consideration accumulated to

savills.com.cn/research 01 Briefing |Beijing sales and investment January 2014

Market commentary GRAPH 1 Aside from a buoyant en-bloc sales First-hand strata-title office transaction volumes, market, both the Beijing office and Q1/2006–Q4/2013 retail strata-title sales markets were active in the fourth quarter and 25 transaction volumes were up. This was largely a result of several quality 20 projects located in established business areas being launched

onto the market or recording 15 active transactions, with office prices ranging from RMB50,000 10 to RMB90,000 per sq m and retail billion RMB prices ranging from RMB67,000 to RMB90,000 per sq m. 5 Beijing’s land market continued to grow in Q4/2013 with 68 land

0 plots transacted, bringing a total Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 consideration of RMB66.7 billion. 06 07 08 09 10 11 12 13 There were 30 residential land plots Source: Savills Research transacted, accounting for nearly 80% of the total transaction volume. Office sector to RMB13.7 billion, up 99% YoY. GRAPH 2 All grades This was mainly due to several retail Grade A capital values and yields, First-hand strata-title office sales podium projects located in mature retail areas, such as Galaxy SOHO, Q1/2003–Q4/2013 figure2 en consideration rose 4.9% QoQ to RMB11.2 billion in Q4/2013, down New World Centre and Times Square, Capital value (LHS) Gross yield (RHS) entering the market with transaction 80,000 16% 3.2% YoY. Several projects boasting prices over RMB80,000 per sq m. 70,000 14% a high standard or a good locality, Mature strata-title retail transaction such as Galaxy SOHO（银河SOHO）, 60,000 12% prices increased by 4.0% QoQ to an

Tunsanli (屯三里), Poly International 50,000 10% average of RMB47,200 per sq m, up Plaza（保利国际广场）, SOHO Peaks 40,000 8% 6.6% YoY. (银峰SOHO) and Delta Centre（达 30,000 6% 美中心）, continued to record active RMB per sq RMB per m En-bloc investment 20,000 4% transactions and high prices. Strata- market 10,000 2% title offices for sales in prime business The Beijing en-bloc sales market districts remained limited, with 87%

0 0% remained active in Q4/2013 with five

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 of the transaction area situated in significant transactions (four office 03 04 05 06 07 08 09 10 11 12 13 non-established business areas or and one retail) concluded for a total Source: Savills Research Page 1 suburban areas. consideration of RMB4.3 billion, bringing the total to 22 significant Grade A office market transactions closed in 2013. Total Grade A office capital values stabilised GRAPH 3 transactions reached a three-year high at an average of RMB62,400 per sq First-hand strata-title retail of RMB26.3 billion, up 88% compared m in Q4/2013, up 0.9% YoY. This was with 2012 and accounting for nearly transaction volumes, Q1/2006– largely supported by limited prime 80% of the total between 2011 and Q4/2013 investment stock, combined with 2012. steady demand from both domestic 16 and overseas investors. Despite this, In the fourth quarter, key transactions 14 Grade A office gross reversionary yields fell 2 bps to 6.02%, down included Go-high Investment acquiring 12 10 bps YoY. Grade A office rents the Danyang Building for a total 10 continued to drop and fell by 0.6% in consideration of RMB1.5 billion, 8 the fourth quarter. Century Evergrowing （世纪恒丰） purchasing the Guanjie Building

RMB billion 6 （冠捷大厦）for RMB1.07 billion, and 4 Retail sector The first-hand strata-title retail market Yunnan Jiangdong Real Estate 2 witnessed a surge in transaction （云南江东房地产） acquiring

0 activity in Q4/2013 with total the retail component of Beijing Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 International Centre 06 07 08 09 10 11 12 13 transaction consideration doubling （北京国际中心） Source: Savills Research compared with the previous quarter for RMB711 million.

02 Briefing |Beijing sales and investment January 2014

Office buildings remain the most Domestic buyers continued to take the the Danyang Building for a total favoured among investors in the en- lion’s share in demand, accounting for consideration of RMB1.5 billion. bloc sales market, accounting for 65% 72% of the total consideration. of the total transaction consideration Developers became more active in in 2013. Low operational costs and Financial companies accounted for the en-bloc market. Due to a lack of a straightforward operational model nearly 60% of the total consideration, experience of operating commercial (particularly compared with retail, particularly insurance companies projects, they focused on the serviced apartment and hotel projects), and banks, taking advantage of their acquisition of under-construction combined with steady demand from abundant cash flow to become the residential projects or under- a large pool of tenants is attractive most active buyers in the market. performing commercial developments to potential investors. Office projects China Taiping Insurance Group Ltd, with the purpose of launching projects transacted in 2013 featured Grade a domestic insurance company, onto the strata-title sales market A-/B projects located in core business acquired two office buildings located rather than holding the properties. districts such as the CBD, Beijing in the CBD and BFS vicinity for a total For instance, Vanke acquired Financial Street (BFS), Zhongguancun consideration of RMB5.2 billion and Palace 77 for RMB692 million and (ZGC) and the Lufthansa, or under- China Merchants Bank acquired a Guangyaodongfang Group acquired construction developments located in project currently under construction two projects located in ZGC for a total the vicinity of traditional business areas located in BFS for RMB3.9 billion. consideration of RMB3.05 billion. such as BFS and the East Second Go-high Investment, a domestic Ring Road. commercial real estate fund, acquired Prime investment stock was still limited

TABLE 1 GRAPH 4 Major strata-title office projects, Q4/2013 En-bloc investment volumes,

Average price Q1/2007–Q4/2013 Projects Location Submarket (RMB per sq m) Q1 Q2 Q3 Q4 50 Galaxy SOHO East Second Ring Dongcheng district 80,000–95,000 45 银河SOHO Road 40 Tunsanli Chaoyang district Lufthansa 65,000–75,000 35

屯三里 30 Delta Center Chaoyang district CBD and vicinity 50,000–56,000 25 达美中心

RMB billion 20 Poly International Plaza Chaoyang district Wangjing 50,000–56,000 15 保利国际广场 10

SOHO Peaks 5 Chaoyang district Wangjing 50,000–55,000 银峰SOHO 0 2007 2008 2009 2010 2011 2012 2013 Source: Savills Research Source: Savills Research

TABLE 2 Major strata-title retail projects, Q4/2013

Average price GRAPH 5 Projects Location Submarket (RMB per sq m) En-bloc investment volumes by Galaxy SOHO East Second Ring Dongcheng district 85,000–95,000 银河SOHO Road property type, 2007–2013

New World Centre Office Retail Apartment Service Apartment Hotel Complex Chongwen district Chongwenmen 85,000–95,000 新世界中心 50 Hopson Kylin 45 Chaoyang district Wangjing 82,000–92,000 合生麒麟社 40

Fangheng Times 35 Center Chaoyang district Wangjing 75,000–85,000 30 方恒时代中心 25

Eastern Sunlight RMB billion Chaoyang district Wangjing 75,000–85,000 20 阳光上东 15 Scenery Garden Xuanwu district Xuanwumen 65,000–70,000 10 倚景园 5 SOHO Peaks Chaoyang district Wangjing 65,000–70,000 0 银峰SOHO 2007 2008 2009 2010 2011 2012 2013 Source: Beijing Land Reserve Centre, Savills Research Source: Savills Research

savills.com.cn/research 03 Briefing |Beijing sales and investment January 2014

in Beijing as the majority of landlords GRAPH 8 were reluctant to cash out their core Land transaction volumes, Q1/2008–Q4/2013 assets unless under high premiums. As a result, transacted projects located in Q1 Q2 Q3 Q4 established areas accounted for only 200 45% of the total consideration, with 180 those located in non-prime or even suburban areas accounting for 55%. 160

140 Land market Beijing’s land market continued to heat 120 up in Q4/2013, with 68 land parcels 100

sold bringing a total consideration of RMB billion RMB66.0 billion, up 36% QoQ and 80 nearly five times that of Q4/2012. 60 A total of 214 land parcels were transacted with a consideration of 40 RMB182 billion in 2013, a six-year 20 high. 0 The rapid growth of the land market 2008 2009 2010 2011 2012 2013 was mainly attributed to buoyant Source: Savills Research

GRAPH 6 residential land plot sales. Thirty Several office and retail developments Buyer profile residential land plots were transacted located in prime areas, such as in the fourth quarter, bringing a total East Second Ring Road, Sanlitun consideration of RMB52.3 billion, up and Wangfujing, received interest 39% QoQ and nearly seven times from a number of investors and are 3% that of 2012. These residential plots currently in negotiations with potential Developer were transacted with relatively high purchasers. 21% SOE premiums ranging from 15% to 136%. Bank Most landlords of retail developments 34% The first-hand commodity housing are expected to continue holding onto 2% Insurance price index increased by 15.4% in their assets rather than cash out. A Security the first 11 months, with inventory repositioning of trade and trade mix Fund/equity falling 24% YoY by the end of 2013. for under-performing retail projects in 20% 5% Others Supported by strong demand from good locations and with heavy footfall, 15% first-home and improvement buyers, as well as relatively low acquisition many leading real estate companies costs, is expected to attract a number such as Greenland, Beijing Capital, of investors. 

Source: Savills Research Urban Construction, Vanke, Poly, Uni- Construction, Sunac, R&F, Evergrand, Longfor and Financial Street actively GRAPH 7 competed for residential plots in Distribution of transacted projects Beijing. Market outlook 9% Limited prime investable stock combined with strong demand from both domestic and overseas investors Established areas 45% is expected to support Grade A office Non-prime areas capital values despite an expected 46% Suburban areas rental decline of at least 2% in 2014. As a result, Grade A office gross yields are projected to compress further to 5.8% to 6.0%.

Source: Savills Research

04 Briefing |Beijing sales and investment January 2014

TABLE 3 Significant en-bloc investment deals, Q4/2013

Consideration Aboveground GFA Average price Property Location Buyer (RMB mil) (sq m) (RMB per sq m) Yunnan Jiangdong Beijing International Centre CBD 711 37,800 18,800 Real Estate Group 北京国际中心 Limited

Lufthansa Centry Building North Third Ring, 520 23,200 22,400 Sage Capital 燕莎盛世大厦 XiCheng Danyang Building Shilihe 1,500 43,561 34,400 Go-high Investment 丹阳大厦 Guanjie Building TaiYangGong 1,069 24,175 44,200 Centry Evergrowing 冠捷大厦 Financial Street Guang'an Centre Plot B Office Building #4 Eastern Part Hengtai Securities Guanganmen 509 10,000 50,000 金融街广安中心B地块4号楼东侧部分 Co, Ltd 写字楼

Source: Beijing Land Reserve Centre, Savills Research

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