THE lasting legacy that the upcoming Beijing Olympic Games will have on the capital city's property market will be positive, professional real estate services firm Jones Lang LaSalle has concluded.
In a white paper titled "Accelerating Towards a New Beijing," the company dismissed earlier speculations that the Games might lead to a downturn in Beijing's real estate market after it closes.
The paper noted that the Olympic Games is only one of the drivers in the transformation of Beijing.
Since Beijing won its Olympics bid in 2001, approximately US$41 billion has been budgeted for the city's transformation. A substantial portion of this has been invested in improving the environment and expanding its infrastructure, which has helped create new commercial areas as well as suburban residential hubs.
"The government, in their effort to improve Beijing's development landscape, facilitated the completion of a large amount of new, high quality space in key commercial areas," said Ben Christensen, head of research for Jones Lang LaSalle Beijing.
"This has led to a substantial expansion in the high-end retail, office and residential sectors which is a very positive development for the city."
Beijing is an increasingly critical location for office occupiers as they expand their presence in China, the report said. The demographics and consumer sentiment supporting the rapid development of the luxury retail market are expected to continue improving, and residential projects are likely to enjoy strong demand.
These demand factors have little direct correlation with the Games and are expected to underpin strong absorption across all sectors of the Beijing property market in the medium to long term, it said.
In 2007 and 2008, Beijing's high-end property market has been undergoing a dramatic expansion as total stock in the office, retail and residential markets are anticipated to grow by 52 percent, 89 percent and 58 percent respectively.
The increase is, nonetheless, substantial and is anticipated to lead to temporary oversupply conditions in the months following the Games. However, this impact will be short-term as anticipated strong demand will likely absorb residual vacant space in 2010 and 2011 when less new supply is expected.
From a long-term perspective, several key themes have emerged:
Higher quality
Prior to 2007, Beijing suffered from a shortage of international-standard office and retail space, so some large office space occupiers and retailers were forced to adjust their Beijing expansion plans in response. 2007 and 2008 are bringing new options and new opportunities for these occupiers with the completion of 10 new Grade A office buildings and 11 new wholly owned shopping centers.
Tenants in need of expansion space now have high quality options to choose from and international retailers are expanding rapidly, with some brands, such as Zara, expanding into multiple new locations.
Strong demand
In response to the influx of new supply that entered the Beijing retail and office markets in 2007, it was anticipated that vacancy rates in these sectors would increase and that rents would consequently fall. Vacancy rates did increase slightly, but in fact, in the office market at the end of 2007, average rental had grown by 17.8 percent year on year.
Increased quality is one reason for this, and an additional important reason is strong, pent-up demand. Some large multinational corporation (MNC) office-occupiers had to adjust their expansion plans prior to 2007 due to a lack of suitable space.
With the completion of more than 1.3 million square meters of new office space in 2007, these occupiers now have a variety of options that present opportunities for them to relocate, expand and upgrade. Retailers are also actively signing pre-leasing deals in upcoming new developments to ensure that they have a strong presence in Beijing's promising market going forward.
1.3 billion consumers
The Olympics represent an opportunity for MNCs and luxury retailers to access China's population on an unparalleled scale. TV audiences for the Games are expected to reach all-time highs and more than 50 Chinese and foreign companies have signed agreements with the Beijing Olympic Organizing Committee to act as sponsors, partners or suppliers.
Some firms paid up to US$200 million for this opportunity. The need to have an established platform from which to launch these marketing campaigns has accelerated the China entry process for some MNCs. Additionally, luxury retailers and consumer products companies are eager to use the event as means to introduce China's huge consumer base to their products.
"Beijing has raced up the rankings of world cities within which to live, visit or establish a business. The legacy of the Olympics is likely to be a key contributor to Beijing's success for the next decade and beyond," said David Hand, managing director for Jones Lang LaSalle Beijing.