Riding the investment wave in Beijing

August 13, 2019 / By  

Now is the time for investors to take a new look at the commercial real estate market in Beijing. Backed by strong fundamentals, the Chinese capital offers a healthy outlook and a number of promising options as outlined in our newly released white paper – Riding the Investment Wave: Exploring Commercial Real Estate Opportunities in Beijing. Despite ongoing trade war tensions and persistent economic uncertainty, our paper shows what Beijing has to offer.

In our report, we look at how policy has played a crucial role in driving forward the direction of the market. We also highlight key market activity over the last decade and take into consideration the sentiment of investors – the ultimate movers and shakers in the market.

Policy perspective

Amid this tight policy period, it is critical for investors to understand the environment prior to making decisions. Two main policy directions are shaping the market: first, the limiting of core supply; and second, the redirecting of demand to outer areas.

  • In limiting core supply, restrictions placed on commercial development in the city centre have led to a surge in enthusiasm for office conversions, but as policies further tighten, the window to repurpose underperforming retail and hotel assets into office space is starting to close. Going forward, innovation centres or ‘convert-to-suit’ opportunities are likely to be a bright spot in the market.
  • Targets to improve liveability at the core of the city are also supporting wider plans to decentralise Beijing and drive demand outwards. Policy-led Tongzhou is set to kick-start development on the periphery.

Market activity

While Beijing is characterised as a market with limited transactions, a number of core, value-added, and emerging opportunities are surfacing, providing investors with a range of value-driven and growth options to consider.

  • The availability of core assets is still expected to remain scarce, but we do expect more of these properties to trickle into the market. With a strong outlook, the healthy office market is set to remain the main investment hotspot.
  • Value-added opportunities, and conversions in particular, are still expected to draw huge interest, even as policy works to reduce the number of potential prospects in the market. Upgrade opportunities will also remain popular.
  • Emerging opportunities are all about capturing growth on the horizon: Tongzhou and Lize are considered the next priority areas for development in Beijing.

Investor sentiment

Despite policy limitations and following previous activity in the market, what happens next comes to down to the actions of investors – with competing interests – currently playing the market.

  • As a group, investors most prefer to chase core assets in Beijing, with office serving as the leading sector of interest. Retail interest remains high among experienced investors.
  • Although investors have different targets, the lowest accepted office cap rate averages out at around 4.0%. For retail, the figure is slightly higher at 4.2%.

Opportunities for the taking

Investors must understand both the policy and players influencing the market to truly take advantage of every suitable opportunity. Taking the right steps now will help to ensure that potentially huge rewards are not missed in the future.

Read more by downloading the Beijing commercial real estate investment market report here.

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