With massive headroom for growth on the horizon, Chinese financial technology or FinTech companies have the potential to become important Grade A office occupiers in Beijing, as the city’s office market continues along its path towards maturity, according to JLL’s latest whitepaper No Turning Back – Beijing’s Office Market Set to Shine. China experienced a FinTech boom in recent years and claimed more than 90% of FinTech ventures in the Asia Pacific region in 2016[1].

The industry has grown in response to the enormous unmet financial demand of the long tail of the population that exists outside the reach of the traditional system, including lower-income individuals and small businesses. As Chinese FinTech players move upscale, many of them will demand better quality office space for their employees.

Already, the majority or 38 per cent of China’s top FinTech players are in Beijing, compared to 28 per cent in Shanghai and 22 per cent in Hangzhou, according to the 2015 Forbes China FinTech 50 list. Most Beijing-based FinTech companies choose to locate their offices in Zhongguancun, the area known as “China’s Silicon Valley.”

Graph 1: “China FinTech 50” headquarters in Beijing by office submarket
Source: JLL Research, Forbes China

Early days

Despite their large presence and high-profile growth, FinTech companies in Beijing to date have barely scratched the surface of the Grade A market. As the industry is still in its early stages of development, FinTech companies have yet to show great enthusiasm for occupying high quality space, with only five per cent of Forbes’ China FinTech 50 companies in Beijing currently leasing Grade A space.

Going forward, FinTech will follow the path of the IT industry and look at Grade A options for several reasons:

• Tenants will seek higher standard working environments
• There will be increasing pressure to attract and retain top talent with a better office space
• A greater emphasis will be placed on creating a more productive environment

Graph 2: “China FinTech 50” headquarters in Beijing by office grading
Source: JLL Research, Forbes China

Reassuring signs

Many doubt whether the FinTech industry can generate stable demand, especially as policies lean toward tightening in the sector. Taking peer-to-peer (P2P) platforms as an example, a series of high-profile company failures drove up the vacancy rate of Grade A buildings such as Beijing CBD’s IFC in the first half of 2016, and as a result, many landlords refused to lease space to P2P companies.

However, the P2P industry, despite coming under stricter regulations in the last year, continued to expand in 2016. According to data from financial web portal P2P001, the full-year 2016 P2P transacted value rose 138 per cent from 2015 and 752 per cent compared to 2014. At the same time, the average number of daily users of P2P platforms increased 99 per cent y-o-y to 458,600 in 2016. This suggests that tighter controls do not guarantee an end to China’s FinTech growth. On the contrary, a better-regulated market will reduce risk and ensure healthier and more sustainable industry growth in the long-term.

Given that 2.3 million sqm of office space is expected to enter the Beijing market over the next five years, the FinTech industry can serve as an important source of demand to absorb the new wave of supply. As laws and regulations catch up, the increasing maturity and rationality of the industry will also support its development as a stable occupier of Grade A office space in Beijing.

[1]https://newsroom.accenture.com/news/blockbuster-deals-in-china-make-asia-pacific-the-leader-in-global-fintech-investments-accenture-analysis-finds.htm

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