Fuelling Beijing office demand: two key industries to watch

August 26, 2014 / By  

During client meetings I’m frequently asked “Which industries drive demand for Beijing Grade A office space?” Most of our clients are familiar with the usual suspects: banking, investment, insurance, legal and professional services. However, not as many are familiar with the automotive and hi-tech industries – two industries which have shown very strong demand momentum in recent quarters.

China has been the largest new car market in the world for several years, having surpassed the USA in 2010 according to McKinsey. Some international carmakers have partnered with local companies to manufacture cars in Beijing. However, what drives demand for Grade A office space are the sales and finance operations of these firms which have expanded along with the growth in new car sales in China.

The central government’s recent antitrust probes, which have targeted some international carmakers, have left many pondering the effects on foreign carmakers. While any fines imposed would surely dampen profitability, we do not expect to see a drop off in demand for office space from foreign carmakers. New car sales continue to grow and many of these firms are likely to expand their Grade A office footprint to efficiently tap the growing demand.

Zhongguancun: Beijing’s IT hub

Beijing is also known as the Silicon Valley of China. Strong policy support for the hi-tech industry and a deep pool of highly-educated talent have resulted in several large domestic and foreign hi-tech firms leasing Grade A office space in Beijing, and this is not limited to Zhongguancun, a tech hub in Haidian District of Beijing. Large foreign hi-tech companies, such as Microsoft and Apple, have driven demand for Grade A office space but domestic firms are on a quick ascent. The policy environment has also fostered the growth of domestic internet giants such as Tencent, Sohu, and Baidu, who occupy huge spaces in Beijing. Furthermore, some domestic hi-tech companies are competing strongly in the China market with leading global brands. Xiaomi became the top selling smartphone brand in China, surpassing Samsung, in the second quarter of 2014. While the pace of expansion demand from foreign hi-tech firms may be curtailed, domestic companies are likely to pick up the slack.

The flourishing automotive and hi-tech industries set Beijing apart from other Tier-1 cities in China. And although they are not the largest occupiers in Beijing, they are showing rapid, sustainable growth. Firms from these industries will be substantial contributors to take-up not only in decentralised but in core areas.

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