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Beijing Commercial Real Estate
Beijing Offices Beijing Commercial
Property
Beijing Commercial Real Estate
Gets Ready for the WTO
By:
Katja Gaskell
Some believe that WTO membership will be
more hype than help, but others see it as the answer to
Beijing's real estate problems.
It is generally believed that China's
pending entry into the World Trade Organization will be a
blessing for Beijing's real estate market, which has been
depressed since the economic boom of the mid-1990s.
As China began competing on the global
market, it became clear that meeting international standards
for quality and comfort were crucial. The message was clear:
you may choose to cut corners, but your competitors may not.
Traveling through Beijing can feel
uncannily like a trip in Dr. Who's Tardis. In this rapidly
evolving urban stew, the mix of buildings ranges from white
bathroom-tiled high-rises, to mirrored corporate complexes
that could as easily be found in London or New York, to
crumbling hutongs that provide a glimpse into what the
Peking of old looked like.
The capital's commercial real estate
market has been on a dizzying roller-coaster ride for the
past decade. At its peak, roughly around 1994, Beijing's
rental market was on par with the world's major financial
centers. But just six years later, prices have plummeted and
there is debate over whether the bottom has been reached.
It is generally believed that China's
impending entry into the World Trade Organization will be a
blessing for Beijing's real estate market, which has been
depressed since the economic boom of the mid-1990s. Opinions
differ, however, on when and to what degree WTO entry will
impact real estate development in China. Some believe that
WTO membership will be more about hype than help, while
others see it as the answer to Beijing's real estate
challenges.
"Press coverage remains very positive,
but the initial frenzy was a bit naive," says Randy White,
Beijing chief representative of US-based Cushman &
Wakefield, an international real estate company. "The
excitement needs to be tempered a bit."
Even with WTO membership, it will be
five years before deregulation is fully carried out, points
out Samantha Anderson, research and marketing manager in
Beijing for Colliers Jardines, a property management company
based in Hong Kong.
"The WTO announcement cheered everyone
up and made people feel good, but
it's not going to result in any significant changes
immediately," Anderson adds.
Still, others insist on optimism.
Jeffrey Tse, managing director of
Pacific Property Net, a Hong-Kong-based real estate website,
asserts: "I believe China's accession into the WTO will
change China's real estate market."
Beijing Commercial Real Estate
Beijing Offices Beijing Commercial
Property
Excuse Appearances: Beijing's Recent
Real Estate History
Although Beijing seems like it is under
permanent reconstruction, it is only comparatively recently
that the incessant cacophony of banging and drilling took
over the capital.
A major government policy change in 1992
provided overseas investors with preferential incentives to
invest in Beijing commercial real estate, which quickly
resulted in the capital becoming one of the world's most
expensive rental markets. Previously, foreign companies and
foreign residents were extremely restricted by the number of
hotels, housing and office complexes available to them.
However, by late 1994, a surge of new
buildings began cropping up across the city and Beijing's
real estate market peaked. By early 1995 offices were 100
percent occupied and office space was at a premium. Office
complexes were charging over US$140 per square meter per
month. However, the boom didn't last. After the initial
frenzy, rental prices started to slip before plummeting by
as much as 30 percent a year.
"In the early-to-mid-1990s foreign
investors were literally throwing money into the real estate
market," says Pui Chan, Beijing area sales manager for
U.K.-based Regus, an international firm offering
office-hosting services.
"But investors began to tire of China's
meager return on investment." The decline was triggered by a
slew of factors, not the least of which was the Asian
financial crisis of 1997-99 and the reluctance of foreign
multinationals to continue pumping money into a saturated
market.
Oversupply remains a problem, with an
estimated 20 percent to 30 percent of commercial real estate
remaining vacant.
"The commercial and residential markets
are over-built because too many developers rushed into China
at the same time," says White.
Beijing Commercial Real Estate
Beijing Offices Beijing Commercial
Property
Year 2000: Current State of the
Market
But how long before demand equals supply is subject to
debate. While some market analysts believe 1999 was one of
the most active year in recent memory, others insist that
the market is still sluggish. However, overall the advent of
WTO membership has brought about a general feeling of
optimism. As a result, rental fees are once again expected
to rise and vacancies decrease.
"The commercial sector has turned around
very quickly," comments White. "Rents are going up."
Indeed, the 37-story China World Tower
II, which opened last October, only has three floors
available available for rent. The building began with 58,000
square meters of empty space.
Beijing Commercial Real Estate
Beijing Offices Beijing Commercial
Property
Survival of the Fittest
For domestic companies in real estate, a large and steady
inflow of foreign investment will be crucial to reforming
state-owned enterprises. Reform is invariably going to lead
to the closure of many inefficient enterprises. But the good
news is that increasing demand is coming from local private
businesses.
"Last year saw a very new phenomenon,"
says Winnie Yip, general manager and
director of DTZ, an international property advisory firm
based in Hong Kong. "More and more domestic companies are
moving into grade A office buildings which previously had
only been occupied by foreign companies."
In the second half of last year, 60
percent of the demand for rental space came from Chinese
companies. This development was fueled not only by declining
rental fees, but also by a push among Chinese companies to
upgrade their image.
Beijing Commercial Real Estate
Beijing Offices Beijing Commercial
Property
QUALITY COUNTS
In addition to shifts in rental costs, the quality of
projects in Beijing has improved considerably over the last
several years.
"Increased competition has made
developers realize that there is a demand for quality,"
notes Yip.
As China increased its participation in
the global market in recent years it became clear that
meeting international standards for quality and comfort was
crucial for survival. The message was clear: you may choose
to cut corners, but your competitors may not. Therefore, in
addition to modern facades and grandiose, marble-laden
lobbies, a significant number of technical improvements have
also been made.
Higher ceilings, faster elevators,
year-round air conditioning, and ample daily and back-up
electrical power are just some of the improvements included
in newer buildings and renovations.
As Nigel Bacon, group chief executive
officer of Cushman & Wakefield in Asia, observes:
"Multinational companies in Beijing can finally see that the
office market has matured, maybe not fully, but at least to
the point where there is some value for money."
Beijing Commercial Real Estate
Beijing Offices Beijing Commercial
Property
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