Expatriate Relocations [Olympics Part II]

We recently passed the 365-days-to-go mark. Companies are considering how it will affect their relocations. Here’s an excerpt from an email sent this morning to one of our clients.

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Yes, the 2008 Olympics is starting to affect rents, or to be more precise, Landlords’ expectations. This is a concern for us - but primarily for two types of housing:

- Type X: privately owned properties in the city renting for under USD2,500/month
- Type Y: serviced apartments.

For Type X, quite a few landlords are asking for 10 month leases or a premium rent of upto 3x the market rate. Landlords in the higher ranges don’t seem to be as optimistic. This could be because they (i) tend to be more experienced investors and (ii) prefer a steady rental income over a short term windfall. Consider this: renting out to Olympic tenants would de-facto entail leaving an apartment empty for the month before and the month after the Olympics, equivalent to 3 months rent. Add in the cost and time of providing bedding & kitchen utensils and it’s not looking so profitable.

Let me get back to answering your questions. We have seen rental increases of 5-10% over the last 4 months at popular Type X mid-tier CBD properties such as Gemdale, China Central Place, Fortune Plaza and Central Park. There has been increased demand (and occupancy). Completion of adjacent malls in these areas has made once messy construction sites attractive neighbourhoods. Despite this, there are still vacancies. With old leases expiring throughout the year, I expect a continuing regular supply albeit at higher rents.

For Type Y, the major serviced apartments have been in the process of setting their rates for a while. There’s been lot of uncertainty on their part, and until recently, they were reluctant to quote on paper. Quotes over the phone even changed from one day to the next. We experienced this with ******* who wanted to move to Oriental Plaza. Currently quotes for the two months around the Olympics are at over 3x standard rates. An interesting point is that medium-term leases at Oriental Plaza terminating just before the event are at the favourable 1 year rate.

What advice should one give potential transferees?

- For Type X: Transferees should budget having to pay a premium of 10-15% for one-year leases. Landlords’ expectations may drop as we get closer to the Olympics, and they rationalize their expectations. However, it’s best to be prepared for the worst. For summer moves, if possible, delay till after the Olympics.
- For Type Y: Avoid at all cost leases that extend into the month before and during the event. I expect the serviced apartments will do well due to the large number of corporate and provincial visitors.

- For families living in Shunyi with rent budgets above USD4,000/month: Some Landlords may expect a premium but I expect it will be a proportionately lower premium than for Type X properties. If need be, move-in early (June or early July 2008). But, again, if possible, delay moving till after the event.

A possible strategy for HR might be to treat moves starting, in say, May as short-term assignments with transferees staying in a hotel or serviced apartments. During this time, the transferee selects a home. He leaves Beijing in July and returns to take up his permanent assignment right after the Olympics. Of course, there are other factors to consider, but this may be workable for some. Here’s an excerpt from a report that looked at the Sydney Olympics’ occupancy rates:

Occupancy rates fell in the few months before the Games: from 83% in March to 74% in May, and finally to 68% in July and August. There was a further drop to 67% in the two weeks leading up to the Olympics. The games themselves provided hoteliers with a short-term increase in revenue as average room rates increased by 40% and occupancy rates stood at around 80%.

(Source: ETOA Olympic Report http://www.etoa.org/Pdf/ETOA%20Report%20Olympic.pdf)

If Beijing replicates Sydney (not implausible as we are also a distant location for higher-spending Olympic visitors), those private Landlords who find deep-pocketed Olympic tenants will indeed make a short-term windfall. However, there will be availabilities throughout. It will be interesting to see when optimistic Landlords become rational and start normalising rents. Our guess? Late July.

Hope this answers your questions. Do let me know if you have any more.
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