Beijing Olympics Accelerates City Development

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THE 2008 BEIJING OLYMPIC GAMES will be opened on August 8, 2008. Since the city won the Olympic Games bid in 2001, approximately US$41 billion has been budgeted for its transformation and a substantial portion of this has been used to improve the environment and expand the city’s infrastructure. “Beijing today is almost unrecognisable when compared to the city only a few years ago. The combination of government and private sector development and investment has transformed the urban environment,” said David Hand, Managing Director for Jones Lang LaSalle Beijing as quoted by its latest paper, “Accelerating Towards a New Beijing” that was released in mid-April.

Some sources have said the games may precipitate a downturn in the Beijing real estate market. But, in fact there is little direct correlation between the event and the key demand drivers that underpin Beijing’s real estate growth. The lasting impacts on the market will be positive as infrastructure expansion creates new commercial areas and supports the development of suburban residential hubs.

Meanwhile, the government, in improving Beijing’s development landscape, had facilitated the completion of a large amount of new, high quality space in key commercial areas. This has led to a substantial expansion in the high-end retail, office and residential sectors while putting slight downward pressure on rents directly following the games as demand drivers supporting this development will continue to grow, said another executive of Jones Lang LaSalle Beijing.

In 2007 and 2008, Beijing’s high-end property market is undergoing a dramatic expansion as total stock in the office, retail and residential markets is anticipated to grow by 52 percent, 89 percent and 58 percent respectively. This expansion is building on a relatively small base at the top end of the market and that the figures represent the high end of the market as opposed to the mass market.

This impact will be short term as anticipated strong demand will likely absorb residual vacant space in 2010 and 2011 when less new supply is expected. Importantly, from a long-term perspective, several key themes have emerged:

Higher Quality

Prior to 2007, Beijing suffered from a shortage of international standard office and retail space so some large office space occupiers and retailers were forced to adjust their Beijing expansion plans in response. Meanwhile, 2007 and 2008 are bringing new options and new opportunities for these occupiers with the completion of 10 new Grade A office buildings and entry of 11 new wholly-owned shopping centres.

Unexpectedly Strong Demand

In response to the influx of new supply entering the Beijing retail and office markets in 2007, it was anticipated that vacancy rates in these sectors would increase and that rents would consequently fall. Vacancy rates did increase slightly, but the office market at end-2007, average rental had grown by 17.8 percent er year with increased quality being one reason for this.

Some large Multi National Corporation (MNC) office occupiers had to adjust their expansion plans prior to 2007 due to a lack of suitable space. With the completion of over 1.3 million sq m of new office space in 2007, these occupiers now have a variety of options that present opportunities for them to relocate, expand and upgrade. Retailers are also actively signing pre-leasing deals in upcoming new developments to ensure that they have a strong presence in Beijing’s promising market going forward.

1.3 Billion Consumers

The 2008 Olympic Games represents an opportunity for MNCs and luxury retailers to access China’s population on an unparalleled scale. TV audiences for the Games are expected to reach all time highs and more than 50 Chinese and foreign companies have signed agreements with the Beijing Olympic Organising Committee (BOCOG) to act as sponsors, partners or suppliers.

The need to have an established platform from which to launch these marketing campaigns has accelerated the China entry process for some MNCs. Additionally, luxury retailers and consumer products companies are eager to use this event as means to introduce China’s huge consumer base to their products and to their culture.

The expansion of Beijing’s transportation infrastructure will substantially impact the city’s future development. Key implications include: Foot traffic and connectivity for areas surrounding new metro stations will increase dramatically, enhancing access to new retail developments and driving up property and rental values.

Expanding the public transportation infrastructure into more suburban areas facilitates the development of peripheral residential hubs. New subway lines running through established commercial areas will increase property values for adjacent developments and also enable more convenient commuting for workers. (LEO)

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