Upgrade demand drives net absorption

• Relocation between Grade A buildings remained the largest contributor to leasing activity in Q3 2024. New demand stayed conservative, with the exception of TMT companies with positive business outlook that upgraded their workplaces.
• One prominent upgrade leasing transaction of around 11,000 sqm was noted in ZJNT. In addition, an SOE upgraded into its purchased office of around 27,000 sqm in Yuzhu. Thus, the net absorption exceeded 105,000 sqm in Q3 2024.

No new completions in Q3 2024; vacancy edges downward

• No new completion was observed in Q3 2024.
• Further rent declines triggered small-size relocations and upgrades throughout the market. With the two notable upgraders mentioned above, the overall vacancy rate decreased by 1.3 ppts to 19.7%.

More lease incentives to trigger relocations

• The limited incremental demand and cost-saving strategies of potential tenants continued to exert pressure on rents. Rent declines were widely observed amid intense market competition, leading citywide rents to decline by 2.5% q-o-q.
• Besides that, more landlords were adopting flexible leasing strategies, including offering subsidies for office decoration.

Outlook: Economic incentives may warm market sentiment

• A number of financial support policies were launched at the end of September, including the reduction of reserve requirements and the introduction of a variety of other monetary policies. It is hoped these will gradually promote the restoration of business confidence.
• An influx of around 1.5 million sqm of new supply is expected in the next 12 months. Self-use space aside, the imbalance between supply and demand may add to the leasing market competition, and it is assumed rents will continue to decline.