As economic uncertainty continues, it is even more important for us to understand where demand in the Beijing office market is coming from, especially as heightened concerns remain on the horizon. From our latest and fourth annual office tenant survey that tracks more than 100 Grade A office buildings in the city, we see that tech firms are serving as an engine of growth and helping domestic companies increase their dominant position in the market.
Source: JLL Research
Unicorn companies fuelling tech, domestic growth
Accounting for 18% of the Grade A leasing market in 2018, the IT industry was the fastest-growing sector in Beijing, increasing their presence by 2.2 percentage points (ppts) from 2017. A number of domestic unicorn companies fuelled tech-sector growth in 2018, also contributing to the continued rise of mainland Chinese firms in the market. Domestic companies comprised 63% of the market in 2018, up 2.5 ppts from 2017, continuing their steady upward trajectory in the market; in 2015, domestic firms were a relatively weaker majority (52%).
Source: JLL Research
Foreign firms more conservative than before
Under the softening economic climate, foreign companies exercised more conservative leasing strategies in comparison to their domestic peers, diminishing their presence in the market. In 2018, foreign firms made up just 34% of the market, down 3.8 ppts from 2017. Meanwhile, companies from Hong Kong, Taiwan, and Macau nearly doubled their presence in the market in the span of a year, comprising 3% of the market in 2018, climbing 1.3 ppts from 2017.
Wangjing sees surge in domestic firms
At the submarket-level, Wangjing recorded the biggest change in tenant profile in terms of company origin. Domestic firms grew the fastest in Wangjing, increasing their presence in the submarket by 11 ppts, occupying much of the space vacated by foreign firms (after their presence in the area decreased by 12.2 ppts in 2018). As domestic growth momentum remains stronger than foreign momentum, especially in the IT sector, we expect to see an even greater divergence in the amount of space occupied by domestic and foreign firms in the future.
Source: JLL Research
Professional services sector grows quickly
In terms of sector growth, professional services rose faster than others, but was still a distant second to IT at 14% of the market in 2018. The CBD saw the biggest increase from the professional services industry, recording an increase of 5.1 ppts in 2018. As smaller companies such as IT firms mature and outsource financial and legal functions of their operations to professional services firms, we could see this sector continue to benefit from growth momentum. The finance sector held flat (up just marginally by a 0.3 ppt in 2018), after a strong regulatory year in 2018, when we observed numerous P2P and high-risk finance companies rejected by landlords as landlords prioritised more stable tenants.
Demand remains diverse in Beijing
As IT firms and domestic companies led growth in 2018, we continued to see diverse demand in the market; a healthy amount of space was taken by a range of tenants. This speaks to the stability of the market, giving us further confidence that sufficient demand will support the future of the Beijing office market.
Linda Yu, a Publications Manager with JLL Research in Beijing, contributed to this article.
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