Low rents sustain leasing activity

• Overall demand increased slightly, reflecting the rent plunge in the previous quarters, which effectively contributed to the transaction volume. The majority of Grade A office market demand was driven by the upgrade and relocation of existing tenants.
• In Q1 2025, leasing demand from the TMT sector was primarily fuelled by the AI segment of TMT giants and some gaming firms in Zhongguancun and Olympics Area. Small and medium-sized domestic law firms also exhibited notable performance.

Vacancy rate drops slightly to 12.4%

• The recently completed project National Financial Information Building in Lize absorbed sizable vacancies, mainly driven by owner-related entities. However, the remaining vacant space still exerted significant supply pressure on the local submarket.
• Overall vacancy rate decreased 0.2 ppt q-o-q to 12.4%. The impact of new leasing and relocation citywide was offset by downsizing and space surrendering from existing tenants, leading to a limited overall effect on net absorption.

Rents decline steeply, following the precipitous drop observed in the previous quarter

• Rents persisted on a downward path from the preceding quarters, falling by 4.7% q-o-q and 16.1% y-o-y. Rents in all the submarkets continued to decline, leading to the overall plunge.
• The investment market witnessed several office transactions, with a notable deal involving Enlight Media, the main producer of the popular animated film Nezha 2, purchasing an Aolin NEO office project at RMB 1.22 billion for self-use.

Outlook: Rents will maintain a significant decline in 2025

• As overall rents have experienced sharp declines for consecutive quarters, an annual decline of 14.8% is forecast for 2025. This low-rent environment will provide tenants with a wide array of high-quality office space options at affordable rents.
• While rent discounts remain the primary consideration for tenants when making leasing decisions, the fierce competition among landlords will persist in terms of other complimentary services as they explore other possibilities.