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Lize – A future Beijing submarket that needs a beacon

April 20, 2015 / By  

Lize is an area of Beijing that generates a lot of interest from developers and investors, and so we decided it deserved closer inspection. It is likely the last office cluster to be developed near Beijing’s city centre. And one of the main reasons for developing Lize is to kick-start economic growth in an area that has traditionally lagged the rest of Beijing.

Positioning

Touted as a future financial district, many developers have wondered if Lize will simply be an extension of nearby Finance Street. The short answer is no. Tight vacancy and limited supply in Finance Street are likely to cause demand to spill over. But Lize is going a step further and carving out a niche by targeting new types of financial firms from the financial information services and online financial services spheres. During a recent visit, we learned there are incentives, such as rental rebates, offered to attract qualifying financial firms. And some key state-owned financial firms are expected to draw similar types of private firms to the area.

However, the Lize demand profile is likely to extend beyond finance. Several projects are under development by companies which are not involved in finance related activities. Many of them plan to occupy at least a portion of their building for self-use. And we expect to see them leverage relationships with suppliers, distributors and other same-industry connections to lease out spaces that are held for lease.

Challenges

The area faces several challenges to development and later to becoming a mature submarket. Projects are at risk of delay, a problem all too common in Beijing. Taking a page from the CBD playbook, Lize wants office towers to have interconnected basements, improving connectivity but also opening themselves to challenges in construction. We are witnessing slower than expected construction progress in the Beijing core CBD expansion for similar reasons. Adding to the risk of delay, many developers have yet to acquire the land title. We have observed recent cases where slow title transfer has prevented landlords from signing tenants.

But, perhaps the greatest challenge will be to convince decision makers to work there. Most high-level decision makers live far away from Lize, in the northwest of Beijing or in the east. Lengthy commutes for executives are likely to inhibit leasing activity, at least initially.

Lize needs a beacon

A high-profile building to attract and serve discerning occupiers and serve as a benchmark is needed to put Lize on the map. In the same way that high-quality projects served as key anchors to attract occupiers to the once emerging CBD in the 1980s, Lize also needs high-quality office product.

The Beijing Grade A office market is undersupplied and has one of the lowest vacancy rates of any major global market. Not all buildings are created equal and simply constructing more office towers is not enough. Landlords and occupiers alike realise the benefits that Premium Grade A projects offer, and it is time to build more of them.

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