Demand hits a soft patch even though new stores continue to open

• Demand recovery slowed primarily due to F&B retailers facing declining profits from rising costs and increased competition. This situation has led to a slight decrease in leasing enquiries for future store expansions.
• New store openings in the F&B, fashion and lifestyle sectors—benefitting from strong demand in H1 2024—have continued to reduce vacancies across Beijing, particularly in newly-launched projects. Urban net absorption reached 86,500 sqm, maintaining a healthy level.

Supply remains high, but vacancy pressure is limited

• Four new projects entered the market, covering a total area of 220,000 sqm. The average opening rate reached 70%, driven by a thriving market during the pre-leasing period. As a result, the vacancy pressure on the market remained limited once the projects opened.
• Recently opened projects have been absorbed, leading to a low and stable vacancy rate. Urban vacancy increased by 0.3 ppts to 4.8%, while Suburban vacancy fell by 0.2 ppts to 7.6%.

Rent growth slows, with most levels stabilising

• Rent increases slowed, trending toward stability, as misalignment between retailers’ and landlords’ expectations hindered growth. Tenants sought to reduce rents to boost profits, while landlords aimed to raise rents to meet 2024 revenue targets.
• Rent growth in Beijing’s retail market was 0.2% q-o-q in the Urban market and 0.4% in the Suburban. Rents at most projects have stabilised, with only a few new projects that are entering a steady phase still having room for rent increases.

Outlook: 2024 set to be the largest supply year in history

• In 2024, 1.63 million sqm of new supply is set to open, a historic peak. Strong pre-leasing is likely to ensure absorption, as established developers began this process two to three quarters earlier to achieve high commitment rates, keeping supply and demand balanced.
• Future rent increases are expected to slow down due to a misalignment between retailers’ and landlords’ expectations and weakened demand. Urban rents are projected to rise by 2.5% y-o-y in 2024, while the Core market is anticipated to see a 2.0% y-o-y increase.