Rent adjustments trigger leasing activities

• In Q2 2024, net absorption increased to 115,700 sqm due to cost-driven leasing. In the CBD, tenants took advantage of market opportunities to upgrade by moving to newer projects, while those with expiring leases are evaluating their RE strategies.
• In the DBD, rent pressure, due to supply, has prompted larger occupiers to seize opportunities. Cost-saving decentralisation continues, and companies that were in suburban areas are capitalising on the narrowing rent disparity to relocate.

Four projects deliver 261,100 sqm in Q2 2024

• In the CBD, a new project with 40,400 sqm of space entered Xintiandi, generating significant pre-leasing and enquiries. However, a combination of decentralisation and small-scale terminations resulted in a 0.3 ppts q-o-q rise in vacancy to 15.6%.
• Three projects reached completion in the DBD, totalling 220,700 sqm, intensifying market competition. New completions in the quarter offset the relatively active leasing in the DBD and pushed up vacancy by 0.5 ppts q-o-q to 30.1%.

Rents further decline amid market competition for tenants

• Large supply and limited demand continue to put pressure on market rents. Rents declined 4.6% q-o-q in the CBD as property-level competition for tenants remained fierce. Tenants maintained their low rent expectations in a favourable market.
• DBD rents fell 3.8% q-o-q as these landlords continued to utilise low rents and incentives to entice tenants to relocate or upgrade. Landlords are proactively adjusting strategies to fill their vacant spaces or maintain occupancy levels.

Outlook: Rents remain under pressure amid market conditions

• We expect rents to remain in a downward cycle as the market competes for cost-driven relocations. In the current market environment, upgrade demand and the flight to decentralised, higher-quality projects will continue to be witnessed.
• Some anchor tenants with soon-to-expire large-sized leases may start to consider leveraging current market conditions to adjust leasing strategies. Rent adjustments in the current market are expected to drive net absorption towards a gentle recovery.