Low rents have little impact on stimulating demand

• The stimulus to overall demand from the low-rent environment was limited. Tenants remained cautious of costs regarding relocation; thus, a notable proportion of tenants chose to renew leases rather than seek new spaces.
• The industry distribution of leasing transactions was more diversified. TMT industry tenants contributed one-quarter of the total leasing volume. Leasing activities in the Zhongguancun submarket have continued to pick up since the end of 2023.

Intensified supply pressure observed

• No new supply entered the market in Q2 2024. The overall vacancy rate edged up 0.3 ppts to 12.1%. The supply pressure in the Wangjing submarket was amplified as Alibaba fully vacated its office space in the Alibaba Center Building B in Wangjing.
• Although some vacant space was absorbed in several submarkets, landlords are still under heavy pressure in this slow environment. Companies continued to surrender their spaces. Overall Grade A net absorption was recorded at -37,503 sqm in Q2 2024.

Rents continue to decline at a rapid pace

• Grade A average rent in the overall market fell by 3.3% q-o-q. Given the weak demand, other than continuing to reduce rents to attract new demand, landlords have started to offer significant rent discounts on lease renewals to retain tenants.
• The investment market was quiet in the quarter. While investors still maintained a strong interest in Prime projects, the continual decline in rents has made them more cautious in their investment decisions regarding office projects.

Outlook: A rent adjustment period is expected to continue through 2024

• Demand is likely to take time to pick up, with tenants more cautious when making major relocation decisions amid the slow recovery. The proportion of tenants with expiring leases choosing to renew instead of relocate should increase notably in 2024.
• Given the weak demand, landlords will provide more aggressive strategies to attract and retain tenants. Grade A office rents are expected to decline by a significant 11.3% in 2024, the lowest level in a decade.