Experimental Beijing-based developer SOHO China is hoping that the promise of high rental yields will lure Hong Kong investors to its first solely commercial project.
Soho China has teamed up with Centaline Property Agency to sell commercial space in its SOHO Shang Du project in Beijing to Hong Kong investors.
SOHO Shang Du is a 170,000 square metre development that consists of 270 shops and 450 offices in Beijing's central business district.
It was designed by avant-garde architect Peter Davidson, who also designed the Melbourne landmark Federation Square.
The development is proceeding despite a new wave of austerity measures to cool China's overheated property sector.
Soho China is keen to boost overseas publicity and demand for its project.
"We had only sold three [residential] units when we launched our last project in Hong Kong," said Soho China chairman Pan Shiyi.
He said many Hong Kong investors had avoided investing in mainland cities, preferring projects closer to home.
"The rental yield in Beijing's commercial projects are generating double that of similar properties in Hong Kong," Mr Pan said, adding that the project would attract various media companies because of the project's proximity to the CCTV office.
Rental yields in high-end office buildings are about 6 to 8 per cent. Average rent in the first quarter rose 1.6 per cent from the fourth quarter of last year to US$26.8 per square metre per month, while the average asking price rose 2.8 per cent in the first quarter to US$2,205 per square metre, according to property consultant DTZ Debenham Tie Leung.
According to Soho China, prices of office space available to Hong Kong investors range from 2.77 million yuan to 7.20 million yuan, or a unit price of about 19,000 yuan per square metre.
There will be a rise in supply in the near future - 13 developments will provide a total of 1.13 million square metres of office space by the end of the year.
This will add to the existing 3.23 million square metres of grade-A office stock in Beijing.
However, Mr Pan was optimistic about demand for office space in the core business area.
"Our strategy is to build what is lacking in the market," he said, adding that the vacancy rate in core Beijing was very low.
According to DTZ Debenham Tie Leung, the average vacancy of Beijing office space is 11.4 per cent. The central business district has the lowest vacancy rate of 2.9 per cent among six major office areas, while Zhongguancun, which was planned for hi-tech industry, has the highest vacancy rate at 29.4 per cent.
Colliers International expected average office rents to fall about 10 per cent this year due to increasing supply, while capital value would be steady due to stable investment flow.
Some property consultants are warning investors about the management risk involved in subdivided office and retail properties.
A consultant specialising in mainland property market research said: "There is no guarantee of the tenant mix. Some mainland developers provide investors with rental guarantees in a fixed period, but the rental income afterwards may not be sustainable."
