Transactions are primarily driven by relocation demand

• The current market landscape was primarily characterised by relocation-driven demand, with true incremental demand remaining exceedingly limited. Demand from the banking and education sectors has seen a rebound, but this has not translated into a significant trend.
• Several properties have seen significant price reductions in the quarter, facilitating quicker deal closures, reflecting the fact that enterprises were less willing to pay high rents and focused on cost-saving options.

Persistent vacancies place strain on landlords

• No new supply entered the market in the quarter. The overall vacancy rate was broadly stable at 11.9%, 0.2 ppts lower than Q2 2024. Signs of companies frequently downsizing or terminating leases continued to emerge, reflecting ongoing vacancy pressures in the market.
• The overall Grade A market recorded positive net absorption of 24,700 sqm in the quarter, mainly due to the realisation of owner-occupied space in the Zhongguancun area.

Rents remain under pressure

• Average rent in the Grade A market declined by 3.1% q-o-q and 14.3% y-o-y. Enterprises remained highly sensitive to rent discounts, prompting some landlords to offer unprecedented discounts to close deals. This has intensified price competition and driven rents down.
• The investment market was quiet in the quarter. Investors remained cautious in their investment decisions related to office projects.

Outlook: Rents continue to adjust downward in 2024

• Rents in 2024 are expected to decline at a rapid pace, providing enterprises with greater options to relocate or upgrade to higher-quality office spaces at attractive rates.
• Due to the ongoing loss of existing clients and weak new demand, landlords will continue to face significant vacancy pressure, prompting them to offer substantial rent discounts. Grade A office rents are forecast to adjust downward by 13.6% in 2024.