Beijing’s fast-growing technology firms are leasing space at a faster rate than the finance sector, signalling a shift in the city’s office real estate market.
Landlords benefited from rising rents throughout 2018 as tech companies and finance firms competed for space in the city.
Although banks and financial institutions still take the lion’s share of office real estate in Beijing, the third quarter saw IT companies dominate demand for the first time ever, according to research from JLL, which forecasts that the trend is set to pick up pace this year.
“The boom among IT firms in China is significantly impacting the office sector,” says Mi Yang, head of Research for North China at JLL.
Tighter regulation of China’s financial institutions is hindering growth in this sector. Since 2016, the central government has rallied to reduce financial risks in the system through stronger regulatory enforcement and a clampdown on the shadow-banking sector.
“It’s a tough time for China’s finance companies but the momentum is there for growth in the IT sector,” Yang adds.
Beijing is home to big name Chinese tech companies including Alibaba, Baidu, Tencent and Lenovo who are crowding into the capital’s Zhongguancun area, which is often referred to as ‘China’s Silicon Valley’.
One unnamed start-up is reported to have secured a 30,000 square-metre office tower, as well as expanding into co-working space, and this pushed leasing volumes up in the third quarter of 2018. “We calculate their overall take up is closer to 100,000 square metres in Beijing alone,” Yang adds.
Global giants Google and Microsoft are also enjoying growth in China but not as fast as domestic firms.
“The current global political environment with the China-U.S. trade war is restricting and putting hold on their [foreign companies’] expansion plans,” he says.
Unicorns driving growth
Up-and-coming Chinese companies – known as ‘Unicorns’ – are largely responsible for the recent spike in take-up and look set to drive office demand in the next year.
“China’s Unicorns have been expanding fast since about 2014,” says Yang.
Social media companies such as Tik Tok and parent company Bytedance are emerging as major players in China and internationally and they are hungry for more office space.
The growth is good news for the government, whose 20-year city masterplan earmarked high tech industries as a priority sector.
Spill over effect supports second tier markets
The spill-over effect will boost the office real estate markets in second and third tier cities across China, says Yang.
“A lot of government policies to boost this sector are coming from Beijing, and growth is from the companies based there, but the IT boom is a national trend in China.
“There is not enough space to house this growth in Beijing and it’s getting too expensive for some companies, so they’re looking elsewhere.”
Cities like Xi’an in West China is receiving overflow from IT businesses that need back up office space without the high cost of real estate and talent in Beijing.
Other cities like Chengdu, Jinan and Wuhan, which boast strong talent pools already thanks to well-established universities, are also benefiting from corporate expansion. They were identified as ‘engines of growth’ in JLL’s 2018 China 12 report.
“Its not a case of ‘either or’ when it comes to Beijing or other cities,” say Yang.
“These companies are growing up fast and they need space to do that across China.”
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