Investors not deterred by Covid-19 in Beijing

June 15, 2020 / By  

As COVID-19 continues to impact real estate markets around the world, we have not seen investors shying away from opportunities in Beijing’s red-hot commercial property market. Sales activity continued to climb, even as strict emergency response measures and social distancing in the nation’s capital temporarily halted leasing activity during the height of the pandemic.

In the first three months of the year, Beijing’s commercial real estate market recorded a total sales transaction volume of more than RMB 17 billion. While the virus may have postponed some deals, many negotiations pushed through due to investors’ continued confidence in the market. Singaporean sovereign wealth fund GIC’s acquisition of Beijing LG Twin Towers from South Korean conglomerate LG Group was among the deals closed in 1Q 2020. During this period of uncertainty, the RMB 8 billion purchase highlighted the high value of core assets in Beijing, further demonstrating that investors are less concerned about the present situation and more interested in the long-term future of the city.

In another notable deal, Jiujiang Xiancai acquired NAGA Club in central Dongcheng District for RMB 476 million. The domestic steel company plans to use the building as its company headquarters, purchasing the project from Jingrui Holdings. The HK-listed real estate investment firm previously bought the building for RMB 320 million through a legal auction in 2018 – managing to turn a tidy profit of nearly 50% within two years of converting the property from retail to office space.

Commercial real estate in Beijing has experienced an upward trajectory in the market cycle for more than a decade now. The average capital value of Grade A office buildings has increased 167% from 2009 to 2019. The total sales volume topped RMB 80 billion last year, a notably high level given the long-hold nature of Beijing’s commercial real estate market.

Despite disruptions related to Covid-19, some major transactions have already been completed since end-March. There are several deals ongoing and strong investment momentum should continue into 2Q. In April, Baring Private Equity Asia bought Arca Building in Zhongguancun Software Park from Singaporean Mapletree Group for RMB 750 million. In April, Baring Private Equity Asia bought Arca Building in Zhongguancun Software Park from Singaporean Mapletree Group for RMB 750 million. Located in the IT-focused area of Shangdi, the project in the north of the city marks the private equity real estate funds’ foray into Beijing.

Although the fallout from COVID-19 has compounded ongoing economic challenges, investors remain confident about growth opportunities in Beijing. Specifically, in the office sector, growth momentum in the IT sector serves as a bright spot in the market, as it continues to be a strong source of leasing demand. Moreover, with demand for core assets expected to remain strong, investors recognise that they will be better positioned, if they enter the market sooner rather than later.

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