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Knight Frank Launches Beijing Office Market Report Q2 2019

24 July 2019

In Q2 2019, two Grade-A office buildings, including China Life Financial Centre and Beijing mTower, were completed in Beijing. China Life Financial Centre is the first project completed in CBD Zhongfu Plot with a total GFA of 162,000 sqm; Beijing mTower is located in Lize Financial Business District with a total GFA of 51,234 sqm. As of June 2019, the Grade-A office stock in Beijing’s leasing market reached approximately 10.1 million sqm.

FIGURE 1
Grade-A Office Stock Distribution of Office Submarkets (by office GFA)

Source: Knight Frank Research

Regina Yang, Director and Head of Research & Consultancy at Knight Frank Shanghai & Beijing, says, “In Q2, the newly added Grade-A office projects slightly pushing up the vacancy rate. In addition, the economic uncertainty leads to many companies reduced the leasing space in office, therefore, the overall vacancy rate of Grade-A office market in Beijing increased by 0.6 percentage point to 9.5%.   The extend leasing demand was weakly in Q2, the newly added office projects nearly a year are seeing the problem of lower rate of absorption.”

In terms of leasing transactions, the Beijing Grade-A office leasing market rebounded in Q2. The net absorption reached 90,000 sqm in Q2, about three times higher than that of Q1. In the first half (1H) of 2019, the net absorption was 120,000 sqm. Financial companies, hi-tech and Internet companies were the major demand drivers in Q2, accounting for more than 30% of the total signed leases.

In terms of rents, the average rent of Grade-A offices decreased by 1.5% QoQ to RMB 363.3 per sqm per month in Q2 2019. The rising vacancy rates and the declining rents added pressure on landlords, while many of them began upgrading their buildings to cope with downward pressure in rents. 

FIGURE 2
Grade-A Office Rent and Vacancy Rate

Source: Knight Frank Research

Demi Zhu, Director and Head of Office Services, Knight Frank Beijing, says, “Looking forward to the second half (H2) of 2019, we expect that several new Grade-A office projects will be completed in Beijing. New supply will concentrate in CBD Zhongfu Plot, Olympic Games Village area and Lize Financial Business District. It is estimated that over 700,000 sqm of new office space will be added to the market, thus increasing the vacancy rate and adding downward pressure on Grade-A rents.”