Dotcoms Rise Propels Beijing Rental Market

AN explosion of dotcom start-ups has boosted Beijing rents for the first time in five years, with monthly average rents rising more than 20 per cent in the first quarter to US$29.45 (HK$229.71) per net square meter, including management fees, says a Cushman and Wakefield report.

Vacancy rates fell to 17 per cent for the first quarter of the year from 27 per cent at the end of 1999.

Prime office space is being leased at a rapid pace and many popular buildings are running out of full floors for rent.

Internet-related companies, including Internet service providers, content providers and Internet infrastructure providers, have accounted for more than 40 per cent of net demand. Multinational and local companies have occupied the remainder of the Grade-A offices.

The rapid turnaround of the property market has taken most people by surprise. Tenants previously reluctant to make a commitment to landlords have now missed the bottom of the market and are forced to make fast decisions. Meanwhile, landlords are offering more inflexible leasing terms.

Owners of second-line buildings are looking to cash in on improvements in the market.

In Shanghai, prime rentals have bottomed out after an 80 per cent fall, and Morgan Stanley Dean Witter expects a rebound. Morgan Stanley said the mainland's impending World Trade Organization membership and the development of dotcom companies would help recovery.

"It is likely prime commercial property rents as well as upper-end residential property values and rents can grow at a clip of more than 20 per cent over the course of the next couple of years." the company said.

Hong Kong-listed China property stocks, especially those in the upper-end markets, may finally break out of under-performance.

Cushman and Wakefield questioned the reliability of the growing dotcom economy which continues to be the key force driving demand.

Recent declines in technology stocks and the lack of new funding channels suggest there are limits to the explosive growth of online companies.

China had yet to face the consolidation and failures US and European Internet companies were experiencing. New supply could become scarce.

Top-quality office supply would drop in the next one to two years, while many projects were bound by substantial pre-commitments.

Cushman and Wakefield's Beijing office director James Hawkey said if demand subsided, overall absorption rates were bound to drop.

"It's difficult to foresee a continuation in the level of demand,"' he said.

"With top-quality offices in short supply and a limited number of projects on line the rent trend is definitely up, although growth may not be as strong."



People's Daily Online --- http://www.peopledaily.com.cn/english/