Beijing commercial real estate market outlook

Amid a challenging macroeconomic environment, the latest data with respect to demand and rents shows that the downward trend of Beijing’s commercial real estate sector accelerated in 2024, and a market recovery could be delayed.

Amid economic challenges and reduced occupier demand in 2024, office landlords adopted flexible pricing strategies, resulting in the steepest rental plunge on record. Overall Grade A rent declined by 16.1% for the full year, which accelerated from the -8.0% y-o-y drop in 2023. This trend of declining rents across the market sparked a temporary uptick in leasing activity, stimulating tenants into seeking more cost-effective relocation opportunities. As a result, total Grade A office leasing transaction volume rose by 22% y-o-y. Of which, large-sized transaction volume (more than 10,000 sqm) was up 30% from 2023.

Figure 1: Beijing Grade A office leasing transaction volume (2021-2024)

Source: JLL Research, 4Q24

The slow retail market recovery witnessed in the first half of 2024 remained fragile in the second half. At the same time, new supply of prime retail space reached a record 1.62 million sqm in 2024, intensifying competition in the retail market. In such circumstances, most landlords changed their strategy, as new projects were released into the market first and then gradually filled the vacant spaces. In 2024, the average pre-commitment rate for new additions was only 72%, yet in previous years, new project openings would definitely be postponed when the pre-leasing rate was below 90%. Looking forward, there is a sense of optimism as most new projects to be launched this year should be able to gradually increase their occupancy rates to around 90% within one year of opening, driven by F&B brands.

The Beijing logistics market has been struggling with various challenges, including economic volatility combined with a large amount of upcoming supply. These factors have driven a cyclical change from a landlord market to a tenant market during the past couple of years. Cautious tenants have led to a visible increase in the number of tenants relocating from Beijing to Langfang or Tianjin to reduce leasing costs. In the overall market, the challenging conditions have led overall vacancy to trend higher and hover around 18.2%.

However, the core sub-markets, such as Beijing Airport Logistics Park and Tongzhou Logistics Park, are more defensive amid the downturn. With 83% of the new supply from 2025 to 2027 to be located in the Pinggu sub-market, other core and mature sub-market fundamentals remain sound given the prime locations and steady demand from 3PL operators and emerging demand from manufacturers.

Looking forward, governments are expected to exert more effort on fiscal and monetary strategies to provide support to local businesses and consumers in an attempt to bolster economic growth, which could serve as a boost of confidence to Beijing’s commercial real estate markets.