Beijing office market enters phase of systematic restructuring

Beijing: 9 July, 2026 – The Global Digital Economy Conference was held recently in Beijing, marking an accelerated global transition into the era of digital civilization. As a frontier for digital technology innovation, Beijing boasts a vast cluster of AI enterprises and a massive digital economy scale. The city is striving to establish itself as a leader of digital economy development both nationally and globally.

In this context, Beijing’s commercial real estate market is undergoing profound structural changes. “The current Beijing office market is not merely experiencing a cyclical adjustment but has entered a phase of systematic market restructuring,” said Rayman Zhang, Managing Director for North China, JLL. “Consequently, landlords and tenants must jointly reshape their strategic mindset, shifting from single-dimensional price bargaining to long-term value creation and cost-efficiency optimization.”

In 2026 Q2, Grade A office market continued its trend of weakening demand, although Zhongguancun demonstrated resilience due to its strong industrial attributes. Investment market remains divided, with domestic buyers focusing on core locations and high-quality assets. The prime retail market faced continued rental pressure, while the F&B segment continued to lead, and 3C digital brands delivered strong performance. In the industrial market, cost-driven relocations dominated demand, with the Pinggu submarket leading the city in net absorption.

In the second quarter of 2026, weak demand remains the primary driver for the stagnant leasing market. Continuing the trend observed since the start of the year, the leasing market experienced weak demand in 2Q26. Tenant leasing demand was concentrated in the 300-500 sqm range, with preference for fully fitted, plug-and-play office options. Despite overall soft demand, the Zhongguancun submarket continued to attract new leasing demand from quantitative funds and emerging sectors such as AI and humanoid robots.

For the supply side, future projects cause radiating competition. The overall vacancy rate remained stable at 14.7%, a decrease of 0.2 percentage points q-o-q. The net absorption was mainly driven by sizable deals in the CBD, Olympics Area and Lize submarkets. As a peak year for supply, approximately 700,000 sqm of office space is expected to enter the market in 2026. New projects are actively pursuing pre-leasing, primarily targeting consolidation demands from sizable tenants with upcoming lease expires. This leads to direct competition on existing buildings and is expected to pull up vacancy levels in nearby submarkets.

Rent decline narrows in the second quarter of 2026. Overall Grade A rents fell by 1.9% in 2Q26, primarily driven by fierce price competitions in the Third Embassy Area, East Chang’an and East 2 Ring Road submarkets near the CBD. Within these submarkets, older buildings with outdated facilities face sustained pressure in the current competitive market. “Although Grade A rent reductions have narrowed over the past two quarters, the majority landlords still retain room for further rental concessions for tenants with sizable demands. Average rents are expected to fall by 9.7% y-o-y in 2026,” said Michael Zhang, Senior Director of Office Leasing Advisory for JLL North China. “The upcoming projects are currently in the pre-leasing stage with relatively slow progress, which will result in a considerable volume of vacant space entering the market in 2H26.”

Beijing’s capital market continued to exhibit a clear divergence. While the overall office sector remained subdued, prime office assets in core locations continued to attract interest from domestic buyers. It is reported that the quarter’s largest transaction was the Dinghao DH3 project, acquired by a fund jointly established by Ascent Real Estate Investors and domestic insurance companies including AIA Life, Dajia Life, and Manulife-Sinochem. This transaction underscores the allocation preference of insurance companies and other long-term capital for core-location office assets that have undergone upgrades and reached stabilized operations. Owner-occupier activity also remained comparatively active, highlighted by AI firm Z.ai’s (formerly Zhipu AI) acquisition of the Diamond Building in Zhongguancun Software Park, Shangdi area, for approximately RMB 360 million to serve as its corporate headquarters.

In contrast, retail assets continued to draw investor attention. Driven by the steady advancement of the C-REITs market, prime retail portfolios have become a focal point for institutional investors. Outlet projects also maintained appeal, supported by the resilient performance of recently listed C-REITs anchored by outlet properties. Jessie Xu, Operations Director of China and Head of Capital Markets North China, JLL, commented, “Mature retail asset portfolios with robust cash flows continue to attract sustained interest from institutional capital. As investors are placing greater emphasis on yield certainty and asset liquidity, high-quality retail projects and scarce premium Grade A office assets will remain key directions for capital allocation.”

F&B sector leads market demand as 3C digital brands expand aggressively. Despite challenges in the macro consumption environment with Beijing’s total retail sales dropping by 2.5% y-o-y from January to May 2026, F&B sector maintained positive growth, signaling a slight recovery. F&B remained the primary driver in the market, accounting for 38% of total new openings in the first half of the year. Meanwhile, 3C digital brands showed strong performance, gradually securing prime ground-floor locations in shopping malls. A notable example was Bambu Lab, a global leading 3D printing brand, which opened its first Beijing store in China World Shopping Mall.

Rental trends continued to face downward pressure, with core market facing intense adjustments.  In the core market, some mall operators were resetting their price structures and repositioning their assets in response to evolving market dynamics. “Although demand is still in a phase of recovery, the aggressive expansion of emerging sectors has revitalized the market,” said Ji Ming, Senior Research Director for JLL North China. “Brands focusing on technology, culture, and high ‘emotional value-for-money’ are becoming new drivers of demand, precisely aligning with the iterative upgrades in consumer preferences.”

Transaction volume shows marginal recovery as cost control drives relocations. Cost-driven relocations continued to dominate the market, with demand spilling over from high-rent core submarkets to emerging areas with cost advantages. In this quarter, the Pinggu submarket led the city in net absorption, driven by competitive rental levels. Meanwhile, some tenants seized the “tenant’s market” window to upgrade to Grade A warehouses.

The pace of new supply slows temporarily, but absorption pressure remains significant. No new completions were recorded in the second quarter. The overall vacancy rate decreased by 2.6ppts q-o-q to 31.6%. However, the vacancy level remained historically high. As such, landlords generally continued to attract tenants through enhanced price advantages and flexible lease terms. The average rent fell by 5.9% q-o-q by the end of the quarter, indicating the downward trajectory had not yet been substantially reversed.

Looking ahead, the Beijing industrial market is expected to continue its gradual recovery. Although macroeconomic consumption recovery slowed, the rapid growth of smart wearable devices and high-efficiency home appliances boosted e-commerce performance, thereby driving expansion in warehousing leasing demand among leading third-party logistics providers. Also, acceleration in 3PL industry consolidation prompted leading enterprises to prioritize leasing high-quality warehouses. This trend aimed to optimize supply chain efficiency, thereby structurally boosting overall leasing demand. Ji Ming said, “In the long term, as the supply-demand dynamics gradually improves, the market fundamentals are expected to see substantive stabilization and recovery after 2028.”