Overall demand contracts, while Financial Street sees a rebound

• Overall demand has further contracted, leading to a decline in total transaction volume. Despite this, Financial Street continues to draw effective demand through significant rent cuts, primarily from external regions like the CBD and Olympic Area.
• Consolidation among securities companies has boosted financial sector transactions, while TMT sector demand showed a slight recovery, led by gaming companies, AI firms and smart manufacturing businesses.

The vacancy rate continues to rise to 12.6% due to the increasing amount of vacant space

• The National Financial Information Building entered the market in the quarter, with 40% occupancy, mostly by the owner or related entities. Its arrival intensified competition among landlords in the already pressured Lize submarket, owing to soft demand.
• The overall Grade A vacancy rate rose by 0.7 percentage points q-o-q to 12.6% at the end of 2024, with the Third Embassy Area and East Chang’an driving up the figure as surrenders and downsizing continued to weigh on the vacancy rate.

The market experiences the steepest rental plunge in history

• The vacancy pressure overhang ensured rents fell 6.2% quarter-on-quarter, bringing the yearly decline to 16.1%. Despite an increase in space availability, rents in East Chang’an dropped the least, falling by 1.4% quarter-on-quarter.
• The investment market witnessed a few successful closures of non-Grade A office transactions towards the end of 2024, as the price gap between sellers and buyers narrowed compared to earlier.

Outlook: Significant rent reductions are expected to persist in 2025 due to intensified competition

• The government recently pledged to loosen monetary policy and support the slowing economy. Although market confidence is expected to grow, it will require time for the new policy to generate positive momentum in the market.
• Occupiers will continue to seek cost-saving or quality upgrades, prompting landlords to offer appealing leases to attract clients. Consequently, Grade A office rents are predicted to decline further by 14.8% in 2025.