Colliers Quarterly Q4 2016 13 January 2017 BEIJING RESIDENTIAL Rent grew in the serviced apartment market Jamie Xu Analyst North China In light of tightening policies announced by the end of September, the volume of housing transactions and price growth rate in the Beijing residential property market have both decreased in this quarter. In the leasing market, one new serviced apartment project completed and pulled up the average vacancy rate and the average rent. Looking forward, Colliers expects property curbs in the Beijing residential property market to continue in 2017. The average rent and occupancy rate in the serviced apartment market should decrease in the short term due to future supply. Forecast at a glance Demand Leasing demand should edge up in the first half year of 2017 due to seasonal tenants return 9 2017 2017 Supply Three serviced apartment projects are scheduled to complete in 2017 2017 Vacancy rate We predict future supply to push up the vacancy rate in the serviced apartment market to 21% at end-2017 2017 21% Rent New supply should pull down the average rent in the serviced apartment sector. We predict the average rent to decrease by 0.5% YOY by the end of 2017 2017 0.5%
New supply in the three residential segments In the villa sector, the total stock increased by 3.3% QOQ to 19,864 units, due to the completion of nine projects, including Longfor Jade Mansion in the Xishan submarket and Glory Chateau in the Beijing Economics & Technology Development Area submarket. In the luxury apartment sector, seven projects including Riverside Palace in the Zhongguancun & Wanliu submarket and One Central in the Lufthansa & Chaoyang Park submarket entered the market, with the total stock expanding to 24,291 units, up 6.1% QOQ. In the serviced apartment sector, with the completion of Oakwood Residence Damei Beijing (171 units), located in the Lufthansa & Chaoyang Park submarket, the total stock increased by 1.8% QOQ to 7,175 units. Purchasing and leasing demand decreased for different reasons Purchasing demand for Beijing s housing market was subdued due to new tightening policies. Residential buyers have quickly adopted wait-and-see attitude and have a more rational expectation towards price. As a result, the transaction volumes of Beijing s overall residential market decreased by 35.8% QOQ or 29.2% YOY by the end of Q4 2016. In the high-end market including luxury apartments and villas, despite the transaction volume's increase of more than 100% YOY, it declined by 10% compared with last quarter. 3.3% 19,864 & & 6.1% 24,291 & 171 1.8% 7,175 2016 35.8% 29.2% 100% 10% Transaction Volumes and Growth Rate of the Beijing High-end Residential Market (units) 2 Colliers Quarterly Q4 2016
Leasing demand in the serviced apartment market declined given the outbound flow of expatriates for Christmas and New Year holidays. Due to this seasonal factor and new supply, the average vacancy rate increased by 1.3 percentage points QOQ to 20.1% by the end of Q4 2016, while remaining at the similar level compared with the same period of last year. The average rent in the serviced apartment sector raised slightly During this quarter, certain landlords of villas and luxury apartments dropped their rental levels in consideration of the seasonal factors. By the end of Q4 2016, the average rents of villa and luxury apartment sectors decreased by 1.7% and 1.5% QOQ respectively to RMB82.9 and RMB134.7 per square metre (psm) per month respectively. In contrast to the villa and luxury apartment sectors, the average rent in the serviced apartment sector raised slightly by 0.1% QOQ or 1.8% YOY to RMB227.4 psm per month. This was mainly due to two reasons: the new project offered an above-average rent; certain projects with high and stable occupancy rate increased their rental levels, especially the projects in the CBD, Jianguomen and Lido & Wangjing submarkets. One en bloc sales transaction was concluded One en bloc sale of serviced apartment project was recorded in Q4 2016. Tahoe Group s purchase of Fraser Residence CBD East for RMB1.18 billion for investment purpose. The project, located in a prime area along East Fourth Ring Road, has a GFA of 26,966 sq m and a total of 228 units. New Supply, Net Absorption and Vacancy Rate of the Beijing Serviced Apartment Market (units) 2016 1.3 20.1% 2016 1.7% 1.5% 82.9 134.7 0.1% 1.8% 227.4 CBD& 2016 11.8 26,966 228 3 Colliers Quarterly Q4 2016
Developers remained active in purchasing land plots in Beijing In light of the new policies, Beijing increased the land supply for the development of ordinary and affordable housing. Developers remained active in purchasing land plots for their land reservation in Beijing and eight residential land plots were transacted in Q4 2016. Notably, four land sites were zoned for ordinary housing development which will be held and leased by developers. This was reflected by Vanke s purchase of two residential land plots in the Haidian District. Transaction volumes should continue to decrease According to the Central Economic Working Conference held on 14 December, it clarified that houses are for living in, not for speculation. It is worth noting that the national government intends to establish a long-term mechanism and give flexibility to individual cities to adjust housing policies at local level. As a result, Colliers expects tightening measures in the Beijing's residential property market to remain in place in 2017. The transaction volumes should go down in the short-term and prices should correct at a reasonable rate. Three residential sectors will receive new supply in 2017 In relation to future supply, the Beijing luxury apartment segment should receive approximately 15 new projects in 2017, including Oak Mansion in the Zhongguancun & Wanliu submarket and Lotusland Mansion in the Financial Street submarket. Meanwhile, over 20 new Rent of Beijing Luxury Residential Market by Sector RMB psm per month 2016 12 14 2017 2017 2017 15 & 20 4 Colliers Quarterly Q4 2016
villas should be completed, including Longray Chnan in the Xishan submarket and The Garden of Eden Phase II in the Central Villas submarket. In the serviced apartment segment, three projects, including Ascott Riverside Garden Beijing in the Chaoyang District are scheduled to enter the market in 2017, adding approximately 427 units to the market. As a result, we expect the total stock should increase by 6% YOY by the end of 2017. In terms of rent, most landlords prefer to maintain their current rental level and certain stronger serviced apartment owners with lower vacancy rates plan to increase rents in 2017. However, we expect the future projects to yield below-average rents given their location in decentralised areas, leading the average rent to face downward pressure. As a result, Colliers predicts the average vacancy rate to edge up by approximately 1 percentage point YOY and the average rent to decrease moderately by 0.5% YOY as of end 2017. 2017 427 2017 6% 2017 2017 1 0.5% For more information: Jie Li Managing Director North China +86 10 8518 1633 jie.li@colliers.com Andrew Haskins Executive Director Research Asia +852 2822 0511 andrew.haskins@colliers.com Ines Li Associate Director Research North China +86 10 8518 1633 ines.li@colliers.com Copyright 2016 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. 5 Colliers Quarterly Q4 2016