Grade A office rental prices leveling off

Rental rates for Grade A offices in first-tier cities like Beijing appear to be plateauing but they will remain high in the final quarter of this year, industrial experts said Sunday, after a report said that the vacancy rate in Grade A offices in Beijing reached a record low by the end of the third quarter.

"The situation of supply falling short of demand won't change in the last quarter. Rental rates will remain high," Wang Yongping, secretary general of the China Commercial Real Estate Association, told the Global Times Sunday.

"But room for further rises is limited as present rental rates have met the limits of many firms, some of which are moving out of the most expensive CBD and Financial Street areas," Wang explained.

By the end of the third quarter, the vacancy rate of Grade A offices in Beijing dropped to a record low of 2.18 percent, down 0.27 percentage points compared with the second quarter, Beijing Evening News reported Sunday, citing data from global real estate consultancy DTZ.

As there will be no new supply of Grade A offices in the third quarter, demand is set to outstrip supply even further, the report said.

Some developers have changed their office developments into apartment projects, given prospects of an improvement in the residential market after relatively lean times over the last two years as a result of curbing policies, which "worsened the imbalance and drove up rental prices," Wang said.

"The short supply of Grade A offices may drive rental rates higher in the short term but raises wouldn't be that high. The period of price surges in the office market has almost ended in Beijing," Chen Guoqiang, deputy director of the China Real Estate Society, told the Global Times.

Average monthly Grade A office rental prices in Beijing reached 295 yuan ($47) per square meter in the third quarter, up 2.3 percent quarter-on-quarter, DTZ data showed.

Beijing has seen rental prices for high-end offices skyrocketing since 2009, Wang said.

But further price hikes amid a slack economy would be abnormal, experts said. Foreign firms, bearing the brunt of the EU debt crisis, are more sensitive to high rental prices, and some domestic companies are considering buying offices to avoid high rents.