APPD Market Report Article

Beijing

August 26, 2022

Mi Yang, Head of Research, North China

4.1%

RMB 357

Rents
Stable

Occupier demand stalls at the beginning of May

  • Occupier demand for the Beijing office market stagnated in the second half of 2Q22. The total net absorption recorded approximately 47,000 sqm – down two-thirds from the quarterly net absorption in 1Q22. A majority of deals under negotiation were pending due to the strict constraints on decoration and attendance rates in office buildings.
  • The relocation as well as expansion demand from finance and TMT sectors contributed more than half of the leasing activities in the quarter. Also, the 9,000 sqm relocation demand from a domestic company in the culture industry was the only sizable deal over 4,000 sqm in 2Q22.

Vacancy continues to tighten in the quarter

  • No new Grade A buildings entered market in the quarter as the scheduled project, Cinda Centre, was delayed to 2023. In 2Q22, due to the stagnant occupier demand in the office market, the decline in overall vacancy recorded 1.1 ppts, less than that in the previous quarter as it slid 0.4 ppts to 9.8%.
  • Compared with 1Q22, the decline in overall vacancy has weakened. Sizable transactions were limited in the quarter as uncertainties due to COVID-19 restrictions affected potential tenants’ decision-making processes. The decrease in vacant space was largely supported by transactions of less than 2,000 sqm, which accounted for nearly 70% of the total transaction volume.

Overall rents return to negative growth

  • Overall rents returned to negative growth in 2Q22, down by 0.2% q-o-q, but up slightly by 0.5% y-o-y, mainly due to the strict COVID-19 controls, which obstructed the normal functioning of the leasing market. Four of all nine submarkets across the city reported negative rental growth.
  • Due to continuous pressure from economic uncertainty, the investment market performed poorly in the quarter. The only notable transaction recorded was a partner buyout. Sino-Ocean Group sold all of its stake in the office project, Rayzone, in the Lize submarket to Ping An Life for RMB 5.02 billion.

Outlook: Overall rents set to see stable growth in 2022

  • The annual rental growth forecast was cut by 4.4 ppts to 2.3% for the full-year 2022, given the negative impact of COVID-19 on the Grade A office market. With regard to demand, with the easing of pandemic controls by the government, overall rents are expected to start gradually increasing alongside the improvement of occupancy rates.
  • Tenants have been moving out of the area since 2020 in Finance Street. Although the submarket’s average vacancy rate is low, the vacancy of leasable projects with the elimination of self-use buildings has already reached 12.4%. Compared with the previous low vacancy rate of below 5%, local landlords are expected to feel more vacancy pressure, leading to more flexible leasing policies.

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

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