“Office rents in the central business district have fallen 20-30% year-on-year because of the poor economy, foreign companies are pulling out and businesses are moving out,” he said. [generally] “We are struggling to survive,” said Ma Xiaoyu, a Beijing real estate agent.
01:15
China’s second-quarter growth hits 4.7%, below expectations
China’s second-quarter growth hits 4.7%, below expectations
Owners of office buildings in the central business district have experienced a surge in vacant space as major state-owned enterprises such as China National Chemical Holdings Co. Ltd. and China Huaneng Group Co. Ltd. have relocated their headquarters to the Xiongan New Area, about 100 kilometers (60 miles) southwest of the capital.
“Landlords are offering steep rent discounts and generous rent-free periods to retain tenants and fill growing vacancies,” Ma said. “Property developers don’t want their properties to be perceived as being too cheap, so they are waiving rent for several months, effectively reducing the burden on tenants.”
Big technology companies are also relocating their offices outside the city, further increasing vacancy rates. Alibaba Group Holding, for example, recently moved its Beijing headquarters to an industrial park 22.5 kilometers from the city center, freeing up more than 150,000 square meters of office space in the Wangjing district. Alibaba owns the South China Morning Post.
As a result, in Beijing’s northeastern Wangjing and Jiuxianqiao districts, home to several large Chinese and international conglomerates, vacancy rates rose 2.2 percentage points quarter-on-quarter to 24.5 percent in the three months to June, the highest in the city.
Samsung Tower, a 62-story building in the central business district where vacancy rates have risen to nearly 20 percent, slashed its rent to 7.4 yuan per square meter per day, 18.7 percent lower than the regional average of 9.1 yuan per square meter per day, according to data provided by market sources.
The building, which houses the China headquarters of a South Korean conglomerate of the same name, is also offering nine months of free rent – significantly more than the three to four months offered by its central business district peers – in the hope of attracting tenants to fill 8,600 square metres of vacant space.
“Price remains the main focus of competition among landlords as tenants are very sensitive to rent levels in the current environment,” said Lu Ming, research director at Colliers North China.
“With vacancy rates remaining high at over 20 percent, it’s difficult to see rents bottoming out or stabilizing,” he said. “The market still needs more time and patience for demand to recover.”
The relocation of state-owned enterprises to Xiongan New Area, an initiative aimed at reducing Beijing’s “non-core” functions, has brought the area more attention. The smart city was established in 2017 in northern Hebei province to house major state-owned enterprises and serve as a nexus connecting the capital with neighboring economies.
According to data from the business registry office, Qiu Shuangliu Bureau, as of March this year, four state-owned enterprises, including Sinochem Holdings and China Huaneng Group, had registered their headquarters in Xiongan.
Other state-owned conglomerates, including China Three Gorges Group and China Electronics Group, have also moved their headquarters outside Beijing in recent years in response to a government-led relocation drive.
“Beijing has traditionally been the center of government relations and home to most state-owned enterprises, but now that is starting to change,” said Yang Yuejin, director of the E-House China Research and Development Institute. “So the Beijing real estate market can’t be looked at only from an economic perspective. You also need to take policies and politics into account.”
According to Mi Yang, research head for JLL’s North China region, leasing activity in Beijing’s office sector in the first half of 2024 improved compared to the same period last year, but did not reach the expected level of recovery.
“[Still]”Rents citywide are expected to fall further in the second half of 2024, while vacancy rates in the Grade A market are expected to remain stable,” Mi said, noting that a large number of leases are due to expire this year, which could bring demand into the market.
However, China’s economic recovery remains fragile and the office market still faces challenges, which will prompt landlords to offer more favorable terms to retain tenants.
“As rents continue to fall, price differentials between different submarkets and asset types are expected to narrow, leading to increased competition across these categories,” Colliers’ Lu said.
He added that current market rent trends indicate the office sector as a whole is moving away from local rent wars towards a broader city-wide price war.
