Q4 2020Q4 hi-tech sectors Robust leasing demand from the Internet and M B eijing Grade-A Office arket Report

knightfrank.com.cn GRADE-A OFFICE MARKET REPORT Q4 2020

OVERVIEW AND OUTLOOK Driven by the Internet and hi-tech sectors, increased by 0.9 percentage point QoQ space completion, which will drive up the Beijing Grade-A office leasing market to 18.2% while the average rent fell 1.2% vacancy rate. With the recovery of China’s was active in the fourth quarter of 2020 QoQ to RMB328.7 per sqm per month. economy and the increasing market (Q4 2020). The net absorption reached Looking forward to 2021, we expect a activity, the average rent is expected to over 100,000 sqm, five times as much supply peak to occur in the first quarter remain stable. as that in Q3. The overall vacancy rate (Q1), with over 450,000 sqm of new office

FIGURE1: Beijing Grade-A office market indicators[1]

2020 q4 2020 Q4 2020 q4 New supply Rent Vacancy rate 250,585 328.7 18.2% RMB/sqm/month sqm

pps QoQ change: QoQ change: 1.2% QoQ change: 0.9

Q1 2021: Q1 2021: Q1 2021:

Source: Knight Frank Research [1] Rent refers to average effective rent

FIGURE 2: Beijing office development pipeline, 2020-2022 onwards '000 sqm

CBD 2,000

Lufthansa

Financial Street 1,500

East 2nd Ring Road

1,000

OGV

500 Wangjing-Jiuxianqiao

Lize

0 Others 2020 2021 2022 onwards

Source: Knight Frank Research

2 BEiJING GRADE-A OFFICE MARKET REPORT Q4 2020

SUPPLY AND DEMAND In the fourth quarter (Q4), a total of 250,000 sqm new office space was added to the FIGURE 3: Grade-A office supply, net absorption and vacancy rate Beijing office market. The new projects are mainly concentrated in Olympic Games '000 sqm Supply (left) Net absorption (left) Vacancy Rate (right) 1,500 25% Village area and Lize area. The total annual new supply reached 615,199 sqm, of which 1,200 20% 60% of the new space is located in the non-core areas. Looking forward to Q1 2021, 900 15% it is expected that Taikang Tower in CBD

Zhongfu Plot, the renovated project HEXA 600 10% International Plaza in East 2nd Ring Road,

Ray Zone and Ping’an Xingfu Centre in 300 5% Lize area will be completed, bringing over 450,000-sqm office space to the market. 0 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20Q1 20Q2 20Q3 20Q4 In Q4, though the large amount of new -300 -5% supply pushed up the vacancy rate by 0.9 Source: Knight Frank Research percentage point QoQ to 18.2%, the office market has showed recovery in leasing Jiuxianqiao area led by companies expansion demand from e-commerce, demand. New demand was mainly from of e-commerce with office space hi-tech and pharmaceutical companies the Internet and high-tech sectors (online requirements of over 20,000 sqm also performed well with the vacancy rate education, e-commerce). Amongst, the dropped by 5 percentage points decreasing by 5.7 percentage points QoQ. vacancy rate in high-performing Wangjing- QoQ; Yizhuang area dominated by

RENTS As the impact of the COVID-19 pandemic has not completely dissipated, the rent continued FIGURE 4: Grade-A office rental trend its downward trend in Q4. The average rent of RMB/sqm/month 450 Beijing’s Grade-A office market decreased by 1.2% QoQ to RMB328.7 per sqm per month. 400 350

The average rent of East 2nd Ring Road area 300 and Lufthansa area decreased by 1.6% and 250 2.1% QoQ to RMB302.7 and RMB315 per sqm 200 per month respectively. However, Lufthansa 150 area recorded better absorption figure with 100 vacancy rates decreased by 1.3% QoQ. It is 50 expected that the rate of rental decline will 0

slow down in the coming quarter. 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 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 In Olympic Games Village area, the new Source: Knight Frank Research completions in Q4 have bolstered regional TABLE 1: Major Grade-A office leasing transactions, Q4 2020 competitiveness. The average rent increased slightly by 0.9% QoQ to RMB323.6 per sqm per Area Submarket Building Tenant (sqm) Type month. CBD CP Centre Asset Pro 1,600 New Lease Zhaotai International Founder Securities 20,000 New Lease In Q4, the average rent in CBD area decreased East 2nd Ring Road Centre AB slightly by 0.4% to RMB358.2 per sqm per China-Europe Vanke Times · Green Fund Pro- 7,800 New Lease month; the average rent in Financial Street OGV Wangjing motion Association area remained unchanged at RMB636.3 per Wangjing-Jiuxianqiao ZGC Financial Building Miss Fresh 7,600 New Lease sqm per month. The average rent of Lize and Wangjing-Jiuxianqiao LSH Plaza Yuantiku 7,000 New Lease Yizhuang remained at RMB172.4 and RMB126 Source: Knight Frank Research per sqm per month. Note: all transactions are subject to confirmation

In Q4, the rent appreciation was still under However, with the gradual recovery of activity, the office rent may bounce back considerable pressure in each submarket. the market and the increasing market after falling for a while.

3 BEiJING GRADE-A OFFICE MARKET REPORT Q4 2020

INVESTMENT MARKET In Q4, the en-bloc property sales market announced to transfer 100% of the project Zhongguancun, which is also the first continued to attract both domestic and company and the corresponding creditor’s market exit of C-REITs in Beijing. Located overseas investors. Office buildings and rights with Vanke to Ping An Life Insurance on Zhichun Road, , Beijing, mixed-use developments were the main at a price of RMB3.71 billion. Financial the project has a total GFA of over 30,000 types of transacted assets. Amongst, urban Street·Vanke Fengke Centre was developed sqm. It is close to Zhichun Road Station, renovated office projects were still preferred and operated by the project company. the interchange station of Subway by overseas investors. and Line 10. It is a large-scale mixed-use On 28 December, GLP has successfully development comprising office buildings, On 22 December, Financial Street Holdings acquired Yingdu Mansion Block D in apartments and a shopping mall.

Beijing GRADE-A office market dashboard

Beijing Grade-A office inventory, rents and vacancy rates of major business districts

ZGC OGV Wangjing-Jiuxianqiao , Inventory: 1 080 Inventory: 1,110 Inventory: 1,100 Rents: 362.6 Rents: 323.6 Rents: 234.6 VR: 5.1% VR: 22.8% VR: 9.3%

Lufthansa Inventory: 870 Rents: 315 VR: 14.2% BFS

Inventory: 810 East 2 Ring RD Rents: 636.3 VR: 6.5% Inventory: 1,400 Rents: 302.7 VR: 18.1%

Lize（Emerging） Rents: 172.4 CBD Inventory: 3,300 Rents: 358.2 VR: 16.7%

Fengtai (Emerging) Grade-A office Rents: 144.6 Total Inventory approx. Yizhuang (Emerging) 11.6 Rents: 126 million sqm

Source: Knight Frank Research

Note: unit for market inventory – 1,000 sqm; rents using average effective rent at RMB/sqm/month; VR refers to average vacancy rate.

4 We like questions, if you’ve got one about our research, or would like some property advice, we would love to hear from you.

Research & Consultancy Beijing Office Services

Timothy Chen Regina Yang Demi Zhu Senior Director, Director, Head of Research & Consultancy, Director, Head of Office Services, Head of Research & Consultancy,China Shanghai & Beijing Beijing +86 21 6032 1769 +86 21 6032 1728 +86 10 6113 8021 [email protected] [email protected] [email protected]

Martin Wong Amy Cui Associate Director, Analyst, Research & Consultancy, Research & Consultancy, Greater China Beijing +852 2846 7184 +86 10 6113 8039 [email protected] [email protected]

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