Tenants prioritise low rents when making decisions

• The number of market transactions edged up in Q2 2024. Landlords have offered more favourable leasing terms to facilitate the progress of their lease agreements. The main source of leasing demand was from tenants seeking cost-saving relocations.
• Demand growth was moderate in the Pinggu submarket. A 3PL company signed a new lease for more than 10,000 sqm here. Attracted by the low rent level in Pinggu, this tenant relocated from a nearby area to reduce leasing costs.

New completions contribute to vacancy increase

• Three new projects totalling 277,248 sqm entered the market in Q2 2024, with two in the Pinggu submarket. Pinggu’s total stock surged to 430,000 sqm, making it Beijing’s third-largest submarket and entering a phase of rapid development.
• The overall vacancy rate increased by 5.3 percentage points to 15.8%. The rise was mainly due to the sizable amount of unabsorbed space in a new project, and vacant spaces at existing projects were absorbed slowly.

Rents further decrease amid large supply and slow recovery

• The downward trend of overall rents continued, reporting -1.1% q-o-q and -2.4% y-o-y growth. Given a market environment of weak demand, landlords started to provide considerable rent discounts, even for small-sized spaces.
• The Pinggu submarket recorded the largest downward rent adjustment. Since the rents of new projects in Pinggu were much lower than market expectations, existing projects reduced rents significantly in the quarter to compete with new supply.

Outlook: Market to remain tenant-favourable over the near term

• The ongoing supply wave is set to continue in 2024. As low-priced projects in Pinggu gradually enter the market, landlords should continue to provide rent reductions amid increased competition. Overall rents are expected to fall by 4.0% in 2024.
• The low-rent environment will accelerate tenants’ relocation decisions. The Pinggu submarket, with its lower rents and high-quality warehouses, will likely attract tenants that have previously relocated to Tianjin and Langfang back to Beijing.