Leasing demand remains in the process of recovery

• Upgrade-driven demand was particularly active, with around 60% of such leased area coming from the TMT sector. Key tenants included companies engaged in AI software development and AI applications in areas such as home health technology and corporate credit analytics.
• Cost-saving relocations remained a significant component of market activity, with one foreign food retail firm substantially lowering its rents by relocating within ZJNT for approximately 10,000 sqm.

Vacancy rate sees modest improvement

• One new project was delivered in GZIFT, adding about 75,000 sqm of supply. Amid limited new supply and continued absorption, the citywide vacancy rate edged down 0.5 ppts q-o-q to 22.4%, with Pazhou demonstrating relatively strong performance.
• Notably, structural adjustments on the supply side continued. During Q1 2026, two Grade A office buildings collectively repurposed approximately 20,000 sqm of space into hotel use to alleviate vacancy pressure and enhance asset utilization.

Rent reductions to drive absorption

• Facing competitive pressure, landlords continued to cut rents to facilitate leasing transactions. For example, a project achieved full occupancy by leasing nearly 30,000 sqm in Q1 2026, led by rental discount at approximately 15% below that of nearby competitors.
• During Q1 2026, the q-o-q rent decline narrowed slightly despite the unchanged demand-supply. Following sharp rent cut in the prior quarter to meet annual targets, many landlords narrowed rental discount at the early of the year.

Outlook: AI-driven office demand growth in TMT sector

• AI is accelerating integration into traditional industries in the short term, spurring new AI-driven business segments and related office space expansion. It is expected to support demand in the emerging areas such as Pazhou and GZIFT.
• In the remainder of 2026, nearly 800,000 sqm of new office supply is expected to enter the market. Beyond rent concessions,landlords are enhancing operational capabilities and delivering integrated services to remain competitive.