APPD Market Report Article


February 28, 2023

Mi Yang, Head of Research, North China


RMB 354


Demand remains weak with the protracted impact of COVID-19

  • Overall leasing demand further contracted as another outbreak started in early November and economic activities decreased significantly. The lease negotiation period was notably lengthened under current market conditions. Meanwhile, the main demand driver in 4Q22 was relocation demand for cost-control purposes and to upgrade at lower prices. 
  • In the quarter, domestic financial companies continued to contribute nearly half of all leasing demand. With the expansion of investment banking and asset management firms, the CBD was the most active area for these tenants.

Vacancy rate sees a mild increase

  • Decreasing leasing activity and early terminations have led to a surge in vacant areas located in submarkets with a high proportion of tech firms. Negative net absorption was recorded in 4Q22, hence 82% of the total net absorption for 2022 was from the first quarter. Landlords showed more flexibility in giving incentives, even for renewal deals. 
  • Overall Grade A vacancy rate rose 0.4 percentage points (ppts) to 10.0% at end-2022, with Zhongguancun as the main contributor to the rise. Downsizing and disposal weighed on the vacancy rate increase in the quarter.  

Decline in rental rates widens gap further

  • The decline in the overall rents continued, registering -1.1% q-o-q growth and -0.4% y-o-y growth. During this period of decline, rents fell in all submarkets except Lize, which grew by 2.1% at end-2022. Most of the projects in Lize had secured anchor tenants and demand in the area stayed relatively active. 
  • The investment market saw a significant decline in transaction volumes. In 4Q22, amid the low market demand for offices, CapitaLand acquired Borui Plaza, an office asset near the Third Embassy Area, for around RMB 2.1 billion through a court-arranged auction. The deal indicated that investors remained highly confident in the future value of assets in Beijing. 

Outlook: Tumultuous market stabilises

  • As measures aimed at supporting businesses and stabilising China’s economy were released and strict COVID-19 control measures were finally eased at end-2022, market activity is expected to see steady recovery in 2023. It will likely take time for the positive impact of the policies to be felt in the office market, in order for demand and rents to pick up.
  • A lower-rent environment is expected at the start of 2023 to encourage tenants to upgrade and boost leasing activity in the year. Overall vacancy rate is expected to increase with 286,000 sqm of new supply in 2023, while demand is rebuilt.

Note: Beijing Office refers to Beijing's overall Grade A office market.

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