Beijing's office market bouncing back, but rent stays under pressure

The demand from tech, media and entertainment, and telecommunications, energy and infrastructure sectors are rebounding in the capital's office market, but the rent will remain under downward pressure in the second half year, industry experts said.

According to a report by CBRE, an international real estate service provider, the new demand for the office from the TMT sector was strong in the second quarter, and the expansion and relocation demand from energy and infrastructure sectors also rose.

JLL's research also shows that the industry distribution of leasing transactions was more diversified, among which TMT industry tenants contributed one-quarter of the total leasing volume. And among them, gaming companies showed notable momentum.

However, the demand recovery trend since the beginning of this year did not continue, leaving soft leasing demand in this quarter, according to JLL. Tenant relocation demands were constrained by low budgets. Meanwhile, a longer negotiating period was also observed, especially for large leasing demand above 1,000 square meters.

The overall vacancy rate compressed slightly to 10.3 percent, with overall net absorption decreasing by one-third compared with the first quarter of this year, JLL statistics show. Although the space surrendering trend faded out in the quarter, softening leasing demand still resulted in limited net absorption citywide.

Moreover, with around 610,000 square meters' new supply entering Beijing's office market in the second half of the year, the office rent will be under pressure, according to Yuan Hui, head of the office sector of CBRE. Since a number of new projects have launched pre-leasing procedures and hooked some tenants beforehand, the net absorption rate, according to Yuan, will be better than that of the first half year.

For Lu Ming, director of Research Department for North China at global real estate service provider Colliers, a lack of new demand remains the key problem for the softening office market. With the net absorption rate continuing to decline, more landlords began to fine tune their rent. And the average rent declined 3.5 percent month-on-month to 317 yuan ($51) per square meter every month.

Wei Dong, head of research in Cushman & Wakefield North China, said though enquires from tenants for offices saw a surge in the second quarter, they are more prudent in controlling the cost and seek a better price for value. So, the capital's office market is still in a slow recovery period. Meanwhile, as the overall economic situation weakens, offices with decoration are more popular with tenants, due to a lower cost, according to Lian Fengzhe, head of projects and services in Cushman & Wakefield North China.