APPD Market Report Article

Beijing

May 26, 2024

Mi Yang, Head of Research, North China

-11.0%

RMB 312

Decline
Slowing

Recovery in demand triggered by low-rent environment

  • Due to continued rent adjustments over the past several quarters, the current low-rent environment stimulated increased market enquiries in 1Q24. Bargaining between landlords and tenants was still as intense, but the average length of negotiation periods has shortened significantly.
  • The finance and TMT sectors served as demand pillars, with TMT tenants contributing nearly half of the Grade A leasing volume in the quarter. Several leasing transactions from the TMT subsector of 3,000 sqm to 5,000 sqm were recorded in the Zhongguancun and Olympics Area.

Vacancy rate holds steady

  • No new supply entered the market in the quarter. However, landlords in the Finance Street and Wangjing submarkets still suffered from substantial vacancy pressure. Finance Street and Wangjing have experienced continued space surrendering by local anchor tenants for several quarters now, with weak leasing demand to backfill space, which, in turn, has led to negative market sentiment.
  • The overall vacancy rate edged down by 0.1 percentage points to 11.7%. Overall Grade A net absorption was 7,800 sqm, partially offset by negative take-up from the Finance Street and Wangjing submarkets, which totalled -35,700 sqm.

Average rents drop to RMB 287 per sqm per month

  • Grade A average rents in the overall market declined 4.6% on a q-o-q basis and 11.4% y-o-y. With the understanding that direct rent reductions were the only effective way to trigger deals, landlords with the authority to directly adjust rents have made significant changes in their pursuit to backfill space.
  • Investors cautiously made decisions as office leasing performance was uncertain. Market yields have decompressed continuously in the quarter.

Outlook: Rents decline due to fierce competition among projects

  • Grade A office rents are expected to decline by a significant 7.8% in 2024 as competition among projects remains fierce. Following the trend at the beginning of the year, further rent cuts are likely to trigger relocation demand and accelerate the decision-making of tenants who look to reduce costs. Therefore, we forecast overall demand and net absorption levels to improve in 2024.
  • The National Financial Information Building, a Grade A project in Lize with a GFA of 225,000 sqm, will enter the market in 2H24. The project’s topping-out ceremony took place at end-2023, with further construction work to be completed this year. Since there is already sizable vacant space in Lize’s recent completions, this project is expected to add further supply pressure to this submarket.

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

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