Savills World Research Beijing Briefing Sales and Investment November 217 SUMMARY Image: Hopson International Building, East Second Ring Road The en-bloc sales market witnessed strong deal flow during /217. Overall, investors continued to show a preference for the office sector. Due to the recent policies aimed at subduing investment demand in commercial projects, both the first-hand strata-title office and retail markets recorded poor performances in terms of total transaction area during the quarter, down by 52.7% quarter-on-quarter (QoQ) to 87, sq m and 37.8% QoQ to 17, sq m, respectively. The en-bloc sales market recorded five deals during the quarter, reaching an aggregate consideration of RMB1.7 billion. Demand was dominated by domestic owner-occupiers. 28 land plots were transacted in /217, 25 of which were positioned for residential usage. Total transaction volume reached RMB84.12 billion during the period, up 6% QoQ. Increasing prices of core assets will continue to see rates of return face downward pressure. Consequently, investors will pay more attention towards assets in non-core locations which present an opportunity for asset appreciation. Jack Xiong, Savills Research & Consultancy savills.com.cn/research 1
Briefing Beijing sales and investment November 217 Market news State Council Issues Guideline on Overseas Investment August 217 The State Council has released a guideline to promote the healthy growth of overseas investment and prevent risks. Overseas investments in areas including real estate, hotels, cinemas, the entertainment industry, and sports clubs will be limited, while investments in some sectors, such as gambling, will be banned. Office sector All grades The first-hand, strata-title office market saw a total supply of 23, sq m in /217, up by 1.2% QoQ and 45.1% year-on-year (YoY). The recent regulations on commercial and office projects continue to see uncertainty in the future of the market, and as a result, transaction levels remain at a historic low. Total transaction area dropped by 52.7% QoQ to 87, sq m during the period, down by 79.5% YoY. Total consideration decreased by 59.3% QoQ and 79.1% YoY to RMB2.59 billion by the end of the quarter. A softening in demand has seen the average transaction price continue to edge down. The decline in average price has also been further exasperated by the majority of transactions being heavily GRAPH 1 First-hand, strata-title office sales, /28 /217 3 25 2 15 1-5 8 9 1 11 12 13 14 15 16 17 GRAPH 2 First-hand, strata-title office supply and transaction by area, 28 217YTD ' sq m 2,5 2, 1,5 1, 5 Traditional Emerging 28 29 21 211 212 213 214 215 216 17YTD GRAPH 3 Grade A capital values and yields, /27 /217 RMB per sq m 8, 7, 6, 5, 4, 3, 2, 1, Capital value (LHS) Gross yield (RHS) 7 8 9 1 11 12 13 14 15 16 17 16% 14% 12% 1% 8% 6% 4% 2% % concentrated in suburban areas, which typically trade at a discount over prime locations. As a result, citywide average transaction prices were down by 14% QoQ, although up by 1.6% YoY. Strong demand in Zhongguancun and surrounding areas, combined with large transaction volumes in the Beijing Greenland Central Plaza project, enabled Haidian district to rank first, accounting for 36% of the total office area transacted during the quarter. Changping and Shunyi district also posted strong performances, with the two precincts accounting for 43.8% of the total office area transacted. Grade A office market Increasing capital value of assets in prime locations continues to see rates of return face downwards pressure. Grade A office capital values registered an average of RMB75, per sq m by the end of /217, up by 1.% QoQ and.2% YoY. Meanwhile, Grade A office gross reversionary yields tightened further to 5.34%. 2
Briefing Beijing sales and investment November 217 Retail sector Total transaction area in the firsthand, strata-title market was down by 37.8% QoQ and 73.5% YoY to 17, sq m. Total consideration registered RMB2.89 billion during the quarter, representing an average price of RMB27, per sq m, down by 6.5% QoQ and 6.3% YoY. En-bloc investment market The en-bloc sales market witnessed five deals close during /217, recording an aggregate consideration of RMB1.7 billion. Overall preference continues to be given to the office sector. A joint venture between Hopson Development and mainland asset manager BMI Funds has agreed to sell a Beijing office tower for RMB3.665 billion. The subject property known as the Hopson International Building, is the north building of the Beijing Oriental Culture and Art Centre Complex located in Dongcheng district. Due to a scarcity of available stock in core locations, investors are GRAPH 4 First-hand, strata-title retail sales, /28 /217 16 14 12 1-8 6 4 2 8 9 1 11 12 13 14 15 16 17 TABLE 1 Major first-hand, strata-title office projects in /217 Project Beijing Greenland Central Plaza ( 海淀绿地中央广场 ) Grand Royal Canal ( 通州富力中心 ) TBD Metropolis (TBD 云集中心 ) Location Haidian Tongzhou Changping Developer Greenland Group R&F Properties China Investment Corporation / Greenland Group area (sq m) 3,1 3,3 21, Average Price (RMB/sq m) 3,2 51,7 25, TABLE 2 Major strata-title retail projects in /217 Project Guo Feng Shang Yue ( 首开国风尚樾 ) Grand Royal Canal ( 通州富力中心 ) Jade Plaza ( 龙湖 西宸广场 ) Location Chaoyang District Tongzhou District Fengtai District Property type Residential / Retail Podium Office / Retail Podium Residential / Retail Podium Developer Shokai R&F Properties Longfor Properties area (sq m) 2,4 1,97 88 Average Price (RMB/sq m) 68,9 51,5 61,3 savills.com.cn/research 3
Briefing Beijing sales and investment November 217 looking for potential opportunities in non-prime areas. Growing demand, particularly from IT and high-tech sector, were seen in Zhongguancun and Wangjing districts since the beginning of 217. Industrial parks and office buildings, with more affordable transaction prices, built on industrial land in the vicinity, have gained attention from self-users and investment buyers. Major transactions during the quarter included: A domestic technology self-user acquired Technology Park C2-B in Wangjing district for a total consideration of approximately RMB38 million. The deal transacted at an average price of RMB29, per sq m. Another building located in the same technology park in Wangjing district was purchased by a domestic finance company for a total consideration of RMB34 million, at an average transaction price of RMB26,7 per sq m. The premises are also intended for self-use. Faced with a scarcity of land resources and strict land auction rules governing price cap setting, developers continued to access favourably located land plots in the secondary market through equity purchases, including: GRAPH 5 En-bloc investment volumes, 27 /217 5 45 4 35 3 25 2 15 1 5 27 28 29 21 211 212 213 214 215 216 17YTD GRAPH 6 En-bloc investment volumes by property type, 27 /217 5 45 4 35 3 25 2 15 1 5 Office Retail Apartment Service Apartment Hotel Complex 27 28 29 21 211 212 213 214 215 216 17YTD Thaihot Group acquired a 49% equity share in the Qiaoxi Project, in Fengtai district, for a total consideration of approximately RMB518 million, which also includes debt repayment. The deal transacted at an average price of RMB44,2 per sq m. The project consists of five mixed-use land plots, with a total site area of 117,6 sq m. Land market Owner-occupied commodity housing and price-capped housing are still a hot spot for investment in the market, with 28 land plots transacted during /217. Total transaction volume reached RMB84.12 billion, up by 6% QoQ. A total of 25 plots were designated for residential and mixeduse development, seven of which were zoned for owner-occupied commodity housing. The remainder of the transactions fell under the new land-auction rules, which specify that once a plot has reached its maximum ceiling price, the bidding process will move onto the next stage, where buyers bid by increasing their allocation of wholly owned space. During the quarter, a total of twelve plots reached their ceiling price caps and progressed to the next stage of auction. Two commercial land plots were transacted during the quarter. Jingdong Group won a bid at the floor price, for a land plot zoned for commercial/financial service usage in the Yizhuang Economic and 4
Briefing Beijing sales and investment November 217 Technological Development Zone, with a requirement that the plot be 1% wholly-owned for the land tenure. Meanwhile, another plot was transacted at a low premium rate under the requirement of the buyer having to keep 5% whole ownership for a period of 2 years. Market outlook Heightened restrictions towards outbound investment by the government will have a positive effect on the domestic investment market, with the key drivers of demand continuing to stem from domestic self-use buyers and longterm investors. Increasing capital values of core assets will continue to see rates of return face downwards pressure. Consequently, investors will pay more attention towards assets in non-core locations with opportunities for higher levels of appreciation. While the office sector will remain the most popular investment target, it can be expected that a growing number of investors will focus more towards industrial parks located near mature commercial districts. Retail and hotel projects, which offer potential of renovation, will also be a hot topic for investment. The recent introduction of policies aimed at subduing investment demand in commercial projects has seen transaction levels in both the first-hand strata-title office and retail markets remain relatively low. With the government encouraging the development of the leasing market, we can expect more commercial space to be converted to rental housing and released in the market. Developer profit margins will continue to tighten due to the recent roll out of housing purchasing restrictions. It is expected that developers will behave more rationally in terms of pricing when it comes to acquiring land. Quality land on the secondhand market is expected to grow in popularity, with investment through GRAPH 7 Land transaction volumes, 28 /217 25 2 15 1 5 equity structures and M&A growing in prominence. 28 29 21 211 212 213 214 215 216 17YTD Tighter financing channels and higher financing costs will continue to see asset securitisation play an increasingly prominent role in the market. Favourable policies TABLE 3 Major en-bloc transactions, /217 Project Technology Park C2-B ( 电子科技园 C2-B) Hopson International Building ( 合生国际大厦 ) Buyer Domestic Tech Institution Jin Zhi Investment Seller BEZ Electronics Zone Hopson Development & BMI Location Chaoyang Dongcheng Purchased area (sq m) 13,11 75,9 Sales volume (million) 38 3,665 Unit price (RMB per sq m) 29, 48,3 aimed at allowing the conversion of commercial property for rental usage will likely gain the interest of REITs, with long-term lease apartment projects becoming the target of asset securitisation. savills.com.cn/research 5
Briefing Beijing sales and investment November 217 TABLE 4 Major land transactions, /217 Plot Location Planned GFA (sq m) Usage Consideration () Buyer Daxing 217 57 Daxing 76,286 Mixed Use 7.17 Beijing Capital Land / Sino-Ocean Fengtai 217 41 Fengtai 217 65 Chaoyang 217 61 Fengtai 65,65 Mixed Use 7.87 Jinmao / Glory / Shimao Fengtai 36,78 Residential 6.26 Wharf Group Chaoyang 99,922 Mixed Use 5.96 Thaihot Group Daxing 217 58 Daxing 66,237 Retail 38.5 JD.com Please contact us for further information Research Agency Research & Consultancy Investment James Macdonald Director +8621 6391 6688 james.macdonald@savills.com.cn Anthony McQuade Senior National Director +861 5925 22 anthony.mcquade@savills.com.cn Jack Xiong Director +861 5925 242 jack.xiong@savills.com.cn Spring Cao Senior Director +861 5925 248 spring.cao@savills.com.cn Savills plc Savills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 7 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. 6