A Quarterly Overview of the Beijing Residential Market

2005/10/03

Market Review

The average vacancy rate in Beijing’s luxury residential market was stable at 17.3 percent during the third quarter of 2005. Compared with the second quarter of 2005, the average rental dropped 1.2 percent. In the leasing apartment market, large amounts of new projects launched recently led to a decrease in rental prices. Overall rentals in the leasing apartment market fell, while its vacancy rate increased. In the serviced apartment market, rentals rose slightly and vacancy rates fell. This quarter, some villa renovations were completed and entered the villa leasing market. Although its rentals remained almost unchanged, the vacancy rate increased.

Supply

In the villa and leasing apartment market, most units completed last quarter entered the market after decoration. There were very few new luxury projects completed this quarter. One of the newly completed projects was Windsor Avenue in the CBD. On the sales front, many new high-end residential projects appeared in the market such as Greenland Hyde Avenue in Lido and Rits Garden in Shunyi.

Rental Prices and Vacancies

Average rentals of serviced apartments and villas increased slightly, but the rentals of leasing apartments fell by 4 percent this quarter. The vacancy rate of serviced apartments fell 2.3 percent and remained the lowest among all property categories. Vacancy rates of leasing apartments and villas both increased. New supplies in the serviced-apartment market were gradually absorbed by the market. Together with strong market demand, rentals for serviced apartments rose to US$27.20 per month per square metre (sq.m) in the third quarter, up from US$26.30 per month per sq.m in the second quarter. Vacancies were stable at 10.4 percent. Rentals of low-end serviced apartments was close to that of mid-end leasing apartments. A variety of amenities and quality of services of low-end serviced apartments attracted tenants from mid-end leasing apartments. The vacancy rate of serviced apartments dropped 2.3 percent. Its average rentals remained stable at US$21.20 per month per sq.m. In the leasing apartment market, as there were many new projects completed in the last two quarters, especially the mid- to low-end projects, supply surged this quarter after owners finished renovating their units. Despite strong market demand, sharp increases of total stock and intense competition forced a small decrease in rental prices. Overall rentals dropped from US$15.30 per month per sq.m to US$14.60 per month per sq.m. Vacancy rates went up from 18.9 percent to 19.8 percent. New units were introduced to the rental market from newly completed projects causing vacancies in the villa leasing market to increase by 3.1 percent to 16.9 percent. The average rents in the villa market changed only slightly to US$18.40 per month per sq.m.

Sales

Prices in the luxury residential market remained steady. Because of a limited supply and strong demand, the prices of projects located in the CBD area rose noticeably more than in other submarkets. According to DTZ Research, the high-end residential price index of Beijing was 104.4 this quarter.

Market Outlook

In September, the Yangtze Special Situation Fund, buyer of Ocean Express Tower D, signed a contract with Oakwood. This serviced apartment is expected to come to the market in 2006. The supply of high-end serviced apartments has always been limited in Beijing. Many foreign companies are expanding their businesses in China and that has increased the demand for serviced apartments among senior executives. It is believed that the average rental of a serviced apartment will increase, while vacancy rates will remain steady. Consumers will gradually absorb the large supply in the leasing apartment market. Owners and developers may cut rents to attract tenants to increase their projects' occupancy rates. A project at a prime location, with a practical layout and high-quality furnishings will likely increase even more. It is estimated that average rents and vacancy rates of leasing apartments will be stable next quarter.

As for the high-end villa market, overall rentals will be affected by the winter and holiday season exerting higher rental pressure in the market. Although new projects will be completed by developers at the end of this year, most units need to be furnished by the owners before they can be released on the rental market. Therefore, new supply may not affect the market until next year. On the sales front, fewer new projects will enter the market next quarter than this quarter. Other than Orchid Garden in the Shunyi villa area, few new projects in second embassy area will come online. New supplies will relieve strong demand for these submarkets. Overall, prices of the luxury residential market are expected to remain high.



	Article featured in Business Beijing, November 2005 Publication sponsored by Information Office of the Beijing Municipal Government, Beijing Municipal Bureau of Commerce, Development & Reform Commission of Beijing Municipality, China Council for the Promotion of International Trade (Beijing Sub-Council)