Solid but uneven leasing performance in submarkets

• Leasing demand remained stable, as several new leases with an area of more than 10,000 sqm each completed in 4Q23. New leasing demand was mainly from supply chain companies, 3PLs and healthcare companies.
• Demand growth was moderate in the BDIA and Tongzhou districts. A supply chain company signed a new lease for 30,000 sqm in the BDIA district, while one project in the Tongzhou District filled all vacancies in 4Q23 by targeting new leasing demand. However, amid cautious market sentiment and low-price competition from Langfang and Tianjin, slower leasing activity was observed in a few submarkets.

New supply hit a record peak in 2023

• In the fourth quarter, two new projects, one each in the BDIA and Daxing submarkets, were completed. This added about 167,000 sqm of new supply to the market. The total new supply in 2023 reached a historical peak for the past 10 years. By the end of 2023, the total stock of Beijing logistics projects increased from 2.7 to 3.3 million sqm.
• Absorption levels at new projects diverged in 4Q23. One of the new projects was fully committed before it officially entered the market. Another new project recorded very few pre-leasing deals due to its poor location, leaving the project with a relatively higher vacancy rate. Due to the weak performance of this new project, the overall vacancy rate increased by 1.1 ppts to 10.4% in 4Q23.

Rent performance varies by submarket

• While the modest rent growth in 1Q23 brought the annual figure up to 0.4% at year-end, overall rents decreased slightly by 0.6% q-o-q in 4Q23. Pressure from more rent-sensitive tenants and continued rent declines in the surrounding areas of Beijing have pushed some landlords to adjust leasing strategies to attract and retain tenants in the quarter.
• Rents in the TLP submarket have increased modestly, driven by active demand and scarcity of supply in this submarket. Apart from the TLP submarket, individual projects in other submarkets have started to offer incentives and adjust rents in 4Q23. Among them, the BALP submarket, which currently has the highest rents in Beijing, recorded the highest downward rent adjustment in 4Q23.

Outlook: Rents expected to fall in 2024

• Beijing is anticipating a large amount of new supply to enter the market from 2024 to 2025, and this is expected to reach 2.09 million sqm, representing an expansion of two-thirds of the current market size. The logistics market in Beijing should gradually shift from a landlord-favourable market to a neutral market in 2024. 
• The supply pressure and increasing rent sensitivity of tenants are expected to impact landlord sentiment in 2024. Some landlords will further adjust their leasing strategies to boost occupancy. We expect rents to fall at a modest pace in 2024.