A-grade office rents and prices in Beijing declined slightly in the year's first three months, indicates a quarterly report released last Thursday by major real estate agent DTZ Debenham Tie Leung.

There was no new supply of A-grade office space in the quarter, but the momentum of China's entry into the World Trade Organization and its successful bid to host the 2008 Olympics have not been fully reflected in the overall market, said Richard Lum, vice-general manager of DTZ Debenham Tie Leung's Beijing office.

DTZ Debenham Tie Leung, a firm of international property advisers, is headquartered in Hong Kong. It has branch offices in major Chinese cities.

Due to the slowdown of the world economy, there has been limited demand by multinational companies for office space since the fourth quarter of last year. In contrast, domestic firms were more likely to expand.

Rents for most properties did not change significantly. Office vacancy rates in Beijing increased slightly, from 15.3 per cent in the fourth quarter 2002 to 15.7 per cent.

The rental index of A-grade offices in the first quarter averaged 76.03, down 3.6 per cent compared with last year's fourth quarter.

DTZ Research indicates the overall rent level of luxury apartments in Beijing fell from the previous quarter. The average rent was US$27.5 per square metre, down 3.8 per cent.

DTZ research indicates the average vacancy rate for Beijing's apartment leasing market increased from 26.2 per cent in last year's fourth quarter to 26.31 per cent.

Facing rising vacancy rates, the Beijing Municipal Government has encouraged more foreigners to buy properties in the capital.

Beijing Municipal Foreign Economic and Trade Commission and Beijing Municipal Bureau of Finance drafted measures applicable to senior foreign officials working in China for multinationals.

The new policy allows senior foreign officials to receive a personal income tax return of up to 80 per cent of the amount they paid to Beijing in the year before they purchased their property.

"Because the policy was just released, its effect on the real estate market has not been reflected," Shiow Jeng Guo, director of DTZ's residential department, told China Business Weekly.

"But it is certainly good news for Beijing's real estate sector."

Meanwhile, there is also some bad news for Beijing's real estate market.

"In 2005, several major office complexes in Beijing's central business district (CBD) and other commercial areas will be completed," Lum said.

"This may significantly increase pressure on Beijing's office rental market."

About 5 million square metres of office space will be constructed by 2006 in Beijing's CBD.

Meanwhile, about 1 million square metres of new office s pace will be constructed along Beijing's Financial Street, and approximately 1 million square metres of office space will be built in Zhongguancun, or China's silicon valley.

Beijing had 2.86 million square metres of A-grade office space available for lease by last year's third quarter.

A property glut is overshadowing Beijing's office building market, suggests Lum.

Developers can avoid risks by either enhancing or delaying their projects to avoid an oversupply of property in 2005-06, Lum said.

(Business Weekly May 4, 2003)