The high-end leasing market is cooling, and Brookfield's long-term leasing business in China is "not adaptable"

Text: Wise.com

"BLINQ Bolin", a rental residential brand set up by Brookfield Asset Management, has been targeting the mid-to-high-end market from the very beginning. But now it looks like this once full of opportunities in the blue ocean market is not rosy.

"Shanghai Wujiaochang Bolin Executive Apartment" is the first mid-to-high-end long-term rental apartment product created by Bolin Blinq. According to the latest news, the occupancy rate of Building A of Wujiaochang Bolin Apartment is over 80%.

The occupancy situation is not stellar. Although Brookfield announced that the project would start leasing in the third quarter of this year, in fact, Wujiaochang Bolin Apartment had already started business in July and had been in operation for half a year.

The market believes that the high pricing may be the main reason for the slow growth of the occupancy rate of Wujiaochang Bolin apartments. It is reported that the monthly rent of Bolin apartments is about 1-15,000 yuan/month, while the rent of apartment products in the area is generally about 5-6,000 yuan/month. "Although the mid-to-high-end market demand is still there, it is always a niche market. Relevant people said bluntly.

As the long-term rental apartment market enters a period of centralized supply, more rental housing products enter the market, and Wujiaochang Bolin Apartment may also face a new round of market impact. How will Brookfield respond?

China's debut is not adaptable

Brookfield Apartment is Brookfield's first rental residential project in China, marking the starting point of Brookfield's layout in the rental residential sector in China.

The project is a rental residential project acquired by Brookfield from R&F and KWG in 2022, located in the new Jiangwan City area of Yangpu District, Shanghai, which includes office, commercial and hotel formats, and has been transformed into a long-term rental product to the market. It is operated and managed by the newly established mid-to-high-end long-term rental apartment brand "BLINQ", and is officially named Shanghai Wujiaochang Bolin Hotel and Executive Apartment.

Among them, Wujiaochang Bolin Apartment is divided into two independent apartment buildings, A and B, with about 340 apartment rooms, including a variety of room types of 47-100 square meters.

Although Brookfield has many years of experience in the operation of long-term rental apartment projects overseas, it is a little "unadaptable" in the operation of China's first long-term rental project.

The first to enter the market is the Bolin Hotel, which opened on September 25, 2022. According to the original opening plan, Wujiaochang Bolin Apartment will be renovated and renovated in the fourth quarter of 2022 and the second quarter of 2023.

In the end, Wujiaochang Bolin Apartment postponed its official debut to the second half of this year, and only Building A apartments have been launched at present. Brookfield did not disclose the timing of the opening of the B condominium.

Market sources said that the delay in the entry of Wujiaochang Bolin Apartment may be related to the delay in renovation work and the market demand is not as expected, "I believe that the latter accounts for the majority, after all, the project is positioned as a high-end, with a monthly rent of more than 10,000 yuan, which will inevitably further narrow the market." Of course, people with considerable spending power do still exist, but if they can afford the rent, why not just buy a house?"

From the very beginning of the announcement of Wujiaochang Bolin Apartment, the market has begun to express concerns about its high-end positioning and pricing. However, Brookfield is optimistic.

Huang Yingying, head of real estate investment in Brookfield Greater China, once said in an interview with the media that although many people think that the monthly rent of more than 10,000 yuan is too high, "we find that this positioning is very marketable." "Its confidence mainly comes from the analysis and judgment of the customer composition of the area where the project is located.

It is understood that the new Jiangwan plate, where Wujiaochang Bolin Apartment is located, is surrounded by many scientific and technological innovation and emerging industry enterprises, including Shangpu Lingshi, KIC, Hopsonhui, Wujiaochang, the world's top 500 industry incubation base, etc., and employees generally have higher incomes and pursue quality life. In addition, the project is close to Fudan and Tongji, and overseas students and students from other places who come to study for MBA also have relevant rental needs. Therefore, Wujiaochang Bolin Apartment also focuses on senior managers and elites of enterprises along Wujiaochang, Xinjiangwan and Line 10.

But judging from the current rental situation, the market's concerns are not unreasonable. Building A of Wujiaochang Bolin Apartment is not fully rented, which also makes the entry of Building B into the market even more uncertain.

How to tap the new leasing demand will be a "big test" of the operation ability of another high-end leasing project that Brookfield is about to enter the market. According to the launch plan, the second long-term rental project of "BLINQ Bolin", "Shanghai Jing'an Bolin Executive Apartment", will enter the market in the first quarter of 2024.

The project was acquired by "BLINQ Bolin" in August this year, and was previously operated by Landsea Juyuan Building in Jing'an District, with an above-ground construction area of about 18,000 square meters, which can provide about 280 rental residences, and is also positioned in the mid-to-high-end market.

The high-end rental market has cooled

The leasing challenges faced by BLINQ also reflect the structural changes that are currently taking place in China's long-term rental apartment market.

Previously, Jones Lang LaSalle subdivided the long-term rental apartment investment track into four categories: high-end apartment market, mid-to-high-end apartment market, popular apartment market, blue-collar apartment and corporate dormitory market. Among them, the monthly rent of high-end apartments is basically not less than 20,000 yuan/month, and the rent of popular apartments is 5,000-10,000 yuan/month.

According to the survey results, more than 70% of investors in 2023 will focus on the mass apartment market in the next three years, an increase of 30% compared to 2021. In contrast, the willingness to invest in the high-end apartment market has declined significantly. In 2021, more than 5 percent of investors are willing to enter this segment, while in 2023, this number will be less than 2 percent.

The analysis points out that although the new housing in the high-end apartment market has been growing in recent years, the corresponding new demand has not kept up in time, mainly because the economic environment has not completely improved, consumption downgrade has become the mainstream, and enterprises are facing a period of reform and adjustment, which has also caused certain changes in the salaries of employees, including high-income people, and the demand for high-end rental will inevitably decline.

According to the data, in Shanghai alone, the number of new listings from 2020 to August 2023 has been growing, of which 2,510 listings will be opened in 2022, an increase of more than 217%. From January to August 2023, 9 new projects will be opened, with 3,248 units. The market is becoming more and more competitive.

On the other hand, since 2022, with the continuous improvement of the detailed rules for affordable rental housing, a series of favorable policies such as finance, finance and taxation have been brought about. The supply side of the increase in rental housing corresponds to the popular long-term rental apartment track. This is also the reason why investors choose to abandon the high-end market and vigorously increase their positions in popular long-term rental apartment products.

But in the long run, there is still huge room for growth in the long-term rental industry. A number of research institutions believe that there is still room for growth in the scale of housing rental demand in mainland China. Among them, Shanghai alone has more than 10 million migrants, which will become the main driver of the development of the rental housing market.

Although the debut of "BLINQ Bolin" was not satisfactory, Brookfield has always been optimistic about China's long-term rental market. Previously, Brookfield revealed that it will increase its investment in the long-term rental sector in 2023-2024, but the investment will be more diversified.

It is said that in addition to mid-to-high-end projects, Brookfield will also consider a deeper market end, and may also choose to cooperate with other operators, or even consider establishing a new long-term rental brand. In terms of project selection, it is better to focus on the location near the city center and ensure that there will be no new supply in the surrounding area to the greatest extent.

Market participants pointed out that although the occupancy rate of Wujiaochang Bolin Apartment is not ideal, it has at least laid a good brand foundation for Brookfield's long-term rental products, which also helps Brookfield to expand in the field of long-term rental. "But Brookfield still needs to further improve its operational capabilities in order to gain more favor from the market.