Lack of pillar industries to sustain leasing momentum

• Continuing the trend observed since the start of the year, the leasing market experienced weak demand in Q2 2026. Tenant leasing demand was concentrated in the 300-500 sqm range, with preference for fully fitted, plug-and-play office options.
• Despite overall soft demand, the Zhongguancun submarket continued to attract new leasing demand from quantitative funds and emerging sectors such as AI and humanoid robots.

Future projects cause radiating competition rather than systemic shocks

• The overall vacancy rate remained stable at 11.2%, a decrease of 0.2 percentage points q-o-q. The net absorption was mainly driven by sizable deals in the CBD, Olympics Area and Lize submarkets.
• New projects scheduled for completion in H1 2026 were actively pursuing pre-leasing, primarily targeting consolidation demands from sizable tenants with upcoming lease expires, which is expected to pull up vacancy levels in nearby submarkets.

Rent decline narrows in the quarter

• Overall Grade A rents fell by 1.9% in Q2 2026, primarily driven by fierce price competitions in the Third Embassy Area and East Chang’an submarkets near the CBD. Within these submarkets, older buildings with outdated facilities face sustained pressure in current market.
• The Grade A building Dinghao DH3 in Zhongguancun, was recently sold to a domestic equity fund for RMB 6.1 billion. Three insurance companies jointly held a 49.98% stake, while Qicheng Investment, one of the original investors, contributing the remaining balance.

Outlook: Heavy supply pressure expected in H2 2026

• Although Grade A rent reductions have narrowed over the past two quarters, the majority landlords still retain room for further rental concessions for tenants with sizable demands. Average rents are expected to fall by 9.7% y-o-y in 2026.
• The pre-leasing for future projects remains slow, which will result in a significant volume of vacant space entering the market in H2 2026. Consequently, the overall vacancy rate for is expected to rise to 14.6% by the end of 2026.