APPD Market Report Article

Beijing

May 31, 2022

2.0%

RMB 356

Rents
Rising

Sizable transactions support the leasing market

  • The Beijing office market saw continuous strong demand in 1Q22. The total net absorption reached nearly 157,000 sqm − double the total level for full-year 2020. Demand for large spaces of over 8,000 sqm made considerable contributions to market transactions, accounting for more than 55% of the total transaction volume.
  • The expansion demand from notable financial tenants significantly supported leasing activity in the quarter, with a domestic finance company expanding by a considerable 30,800 sqm in the emerging Lize submarket. Domestic demand from TMT and healthcare firms also supported the leasing market.

Vacancy reaches its lowest level since 4Q19

  • In 1Q22, the Beijing office market observed its fifth consecutive quarter of decrease in the overall vacancy rate, sliding from 11.7% to 10.2%, recording the lowest vacancy level in the last ten quarters. The Lize submarket reported a decrease of 7.5 percentage points – the most profound decrease observed in the quarter.
  • Active demand in the quarter pushed down the vacancy rate in recent completions, due to the ability to offer whole-floor space in these projects. Matched by tenants with considerable demand, sizable vacant spaces were absorbed at a fast pace during the quarter.

The overall rents start a full recovery

  • Overall rents reached a turning point in 1Q22, as the growth rate turned to positive, up 1.2% q-o-q but still slightly down 0.3% y-o-y. All nine submarkets across the city reported positive rent growth, with Lize recording the greatest q-o-q growth at 7.5%.
  • Investors actively pursued opportunities during the quarter; TMT-clustered areas such as Zhongguancun-Shangdi, the Olympic Area and Wangjing remained popular. The fast-growing Lize submarket also attracted investors’ interest. Market yield remained at a stable level.

Outlook: Overall rents set to see considerable growth in 2022

  • The recovery in the Grade A office market proceeds in 2022; overall rents are predicted to rise by 6.7% for full-year 2022. As overall rents continue to rebound, the demand momentum since 2021 might slow down.
  • Although Grade A supply is limited in 2022, we expect to see one Grade B project and two renovation projects enter the market around 2022 or 2023 in the Weigongcun area – five kilometres south of Zhongguancun submarket, for a total of 300,000 sqm GFA. This may put a certain level of pressure on landlords in the highly sought-after and tight Zhongguancun submarket.

Note: Beijing Office refers to Beijing's overall Grade A office market.

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