Demand remains stable despite being sluggish in a few areas

• Leasing demand remained stable, with several new leases of over 5,000 sqm each that were completed in 2Q23. New leasing activities were mainly from logistics, electronics technology and healthcare companies.
• Demand growth was moderate in the BALP and TLP submarkets. A dominant healthcare company signed a new lease for 5,000 sqm in the BALP district, and a fresh supermarket company expanded its leased area in the TLP district. However, due to the intense competition from projects near Beijing Daxing International Airport in Langfang, slow leasing activity was observed in the Daxing submarket in 2Q23.

Slight increase in vacancy rate

• One new project in the outer Suburbs, with a total GFA of 78,000 sqm, entered the market in 2Q23. However, absorption levels have been unsatisfactory, with only a few leasing transactions recorded due to the remote location and limited accessibility, resulting in its relatively high vacancy rate.
• The quarter saw an increase in the number of tenants relocating from the Daxing submarket in Beijing to Langfang or Tianjin to reduce leasing costs, resulting in an increase in vacant space in the Daxing submarket. Due to the relatively weak performance of the new project and the Daxing submarket, the vacancy rate increased slightly by 0.8 ppts to 7.1% in 2Q23.

Rent changes diversify in each submarket

• Overall rents were relatively stable, with a 0.5% q-o-q decline in 2Q23 and an annual growth of 3.2% y-o-y. The majority of the projects continued to show stable rent growth. In particular, projects in the TLP and BALP submarkets that were nearly fully occupied increased their rent levels aggressively.
• However, the Daxing submarket has been experiencing downward pressure on rents due to low-price competition from new completions in nearby Langfang. Some landlords in the Daxing submarket have chosen to lower their rents to avoid losing tenants to Langfang.

Outlook: Supply pressure remains high; rent growth expected to slow

• Due to the postponement of two projects scheduled to enter the market in the quarter, supply pressure is expected to increase in the second half of 2023. As nearly 300,000 sqm of new supply will enter the market in the next two quarters, the vacancy rate is expected to be pushed up to around 10.2% in 2023, an increase of 4.4 ppts from 2022. 
• Demand for quality warehouse space is expected to continue to grow and support rent growth in 2023. However, a more modest pace of rent growth is anticipated due to the large supply.