The real estate strategies of companies from various industries tend to focus on promoting workplace efficiency. At the same time, they are now more conservative in their office expansion plan. This is due to the combined effect of the global economic slowdown and China’s own economic transformation. As a result, leasing demand in the Beijing’s office market has weakened, and the main source of demand has shifted from incremental space requirements to utilizing existing space, such as relocation between different buildings.

The Beijing office market has seen large state-owned enterprises (SOEs) dominating leasing demand. The combined presence of SOEs’ headquarters, subsidiaries and branches has accounted for approximately 39% of the city’s occupied Grade A office space. Furthermore, in 2023, SOEs were involved in nearly 70% of leasing transactions encompassing an area exceeding 5,000 square metres.

Prior to the current downturn, the market witnessed rapidly expanding leasing demand, and the influence of SOEs on overall demand in Beijing was not always prominent. However, the role of SOEs in driving demand become much more significant in the current slowdown.

From an industry perspective, the financial services, TMT (Technology, Media, and Telecom) and professional services sectors remain the primary demand drivers in the Beijing office leasing market. These sectors collectively accounted for 63% of the leased area in 2023 transactions. Notably, specific sub-categories within these sectors have also had a significant impact. For instance, domestic law firms represented 32% of transactions from the professional services industry, while domestic non-banking financial institutions accounted for 69% of transactions from the financial industry.

Moreover, the growth momentum in the TMT sector is particularly concentrated in sub-categories such as artificial intelligence (AI), cloud computing and chips. For example, an AI company recently secured a lease for 2,000 square metres of office space in the Zhongguancun area. This emphasises the potential for demand within certain sub-categories and underscores the market demand’s shift from overall industry growth to concentrated development in specific areas.

The short-term prospects for turning the office market around in Beijing may be challenging, as strong growth and large-scale expansion of individual enterprises or industries are not expected in the near term. However, it is worth noting that Beijing ranked first in the country in 2023 in terms of direct corporate financings, the number of listed companies, and total market capitalisation. This reflects the strength of Beijing’s capital market and the ability of enterprises in the city to achieve sustainable development with ample financing opportunities in the medium to long term. In short, leasing demand in Beijing office market is expected to stabilise and improve in 2024, with the support from SOEs, accelerated development of featured sub-categories, as well as the confidence exhibited by the capital market.

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