Upward trend in consumption stimulates demand recovery

• Starting from October 2023, Beijing has witnessed a new surge in consumption, significantly boosting market sentiment. Retail project leasing enquiries increased across the city, mainly due to retailers’ expansion plans for 2024. Existing vacant areas were effectively destocked as there was no new supply.
• Three sectors, F&B, Outdoors and Chinese jewellery, have shown strengthened leasing demand. In 4Q23, these sectors accounted for 54.1% of the total area of new store openings. Additionally, the fashion sector accounted for approximately one-third of the overall newly-leased area in the city.

Pre-leasing challenges result in the postponement of new projects

• In the fourth quarter, pre-commitment rates for five planned new projects in the city, with a total area of 690,000 sqm, stalled at around 70%. Due to the failure to reach a higher commitment rate before opening, the landlords of these projects have decided to delay market entry until 2024.
• From an overall market perspective, the delayed introduction of new supply has eased pressure on existing projects. In the quarter, the market recorded a net absorption of 63,900 sqm. Both Urban and Suburban markets observed the lowest vacancy rate since 2Q22, with the Urban vacancy rate dropping by 0.4 ppts to 5.9% and the Suburban vacancy rate dropping by 0.8 ppts to 6.7%.

Absorption of existing vacancies drives rent increases

• Throughout 2023, projects with leading market performance achieved their annual rent increase expectations sooner compared to others. Most of these top projects, located in the Urban market, drove up rents in surrounding projects. Therefore, although the rent growth rate slowed, the overall rent in the Urban market still recorded a 0.6% q-o-q increase.
• In the Suburban market, there was a steady absorption of vacant space in the fourth quarter. Since the opening dates of new projects were postponed and with vacancy pressure easing, landlords in the Suburban market saw the opportunity to increase rents in the quarter. Rent growth in 4Q23 was 1.2%, up by 0.9 ppts q-o-q.

Outlook: Positive demand outlook to see further rent growth

• The rebound in leasing demand in 2023 enhanced the confidence of landlords in some performance-leading projects. The rents in these projects are expected to climb back to pre-pandemic levels in the next two years. Led by top projects, the average rent in the Urban market in 2024 is expected to increase by 2.3% y-o-y. 
• However, the Beijing retail market will face greater supply pressure since new supply of 1.45 million sqm is expected to enter the market in 2024, reaching a historical peak. The Suburban market vacancy rate is estimated to increase by 3.0 ppts and reach 9.7% in 2024, while the Urban rate is anticipated to rise by 0.7 ppts to 6.6%.