Beijing office tenant relocation driven by pricing flexibility; business park & retail assets top capital allocation

Beijing: 14 October, 2025 – Beijing has implemented a series of targeted policies during the first three quarters of 2025 focusing on consumption stimulation, technological innovation, and deepening reforms to promote economic development. "The Beijing office market has entered a new phase, with narrowing rental differentials across the submarkets enhancing tenant relocation," said Rayman Zhang, Managing Director for North China, JLL. "While subdued demand continues to pressure Beijing’s overall commercial real estate market, landlords are actively seeking ‘second growth curves’ to boost core competence and navigate market slumps."

The Grade A office market continued to experience a downturn, remaining tenant-favourable. The investment market remained dominated by domestic buyers, with niche sectors focusing on retail properties, rental housing and business parks. Prime retail market rents showed accelerated declines, meanwhile, emerging trends came from IP-related and emotional consumption. In the industrial market, several upcoming projects were postponed, which could lead to a release of absorption pressure over the remainder of 2025. In the high-end residential market, favourable policies boosted market sentiment, with upgrading demand becoming the core market driver.

^{Note: The vacancy rate calculation excludes wholly-owned projects across the city.}

Leasing activity across the city continues to decline at a moderate pace, with landlords placing greater emphasis on retaining existing tenants within their buildings. Given the relatively weak incremental demand, non-renewal leasing transactions remained predominantly driven by relocations sized below 1,000 sqm. Additionally, the narrowing rental differentials across submarkets broke down barriers to relocations between submarkets, with several instances of cross-submarket leasing deals successfully settling in recent quarters. Landlords increasingly prioritized the retention of existing tenants through lease renewals, particularly for projects with persistently high vacancy rates or those facing significant leasing pressure in the near term, attempting to stabilize occupancy rates by offering more favorable renewal terms. Sizeable high-quality tenants serving as anchors for the leasing structure within buildings prompted some landlords to provide add-on services such as redecoration of common areas upon lease renewal.

The overall vacancy rate remains stable in the third quarter of 2025. The overall vacancy rate for Grade A leasable office buildings decreased by 0.3 percentage points q-o-q to 15.5%, primarily attributed to large-scale leasing transactions in the Wangjing area. Projects within this area facing substantial vacancy pressures adopted aggressive strategies—such as offering longer rent-free periods—to attract cost-conscious tenants, thereby achieving occupancy gains in the quarter. Beijing’s operation as a stock market meant those projects entering the market over the past several years provided scarce new space options in areas with relatively aging projects such as Zhongguancun.However, supported by competitive leasing terms, these newer projects have achieved high occupancy rates in recent quarters.

The rent affordability of tenants continues to decline. Tenants’ expectations on overall rents remained on a downward trajectory, leading to adjustments in the total rental costs they were willing to bear. Recent relocation transactions not only saw reductions in unit rents but were also often accompanied by a contraction in office size. Rents continued their downward trend from previous quarters, decreasing by 3.2% q-o-q. Given limited incremental demand, the overall market is expected to remain a tenant-favorable environment as tenants seek more advantageous leasing terms and leverage the persistently low-rent environment to make relocation decisions that reduce costs while enhancing quality. According to Michael Zhang, Senior Director of Office Leasing Advisory for JLL Beijing, "The overall downward trend in rents is expected to persist until at least 2027."

In the third quarter of 2025, participants in Beijing’s investment market prioritize retail properties, rental housing and business parks. A notable business park transaction this quarter was the acquisition of CBC Daxing Life Sciences Park by the CBC Life Science Infrastructure Core Fund Phase I. CBC Group introduced globally renowned insurance institutions as strategic investors and successfully established its first RMB fund with total funds of RMB 925 million, specializing in investing in premium life science infrastructure across China.

From the perspective of buyer composition, both domestic and foreign investors participate in the investment activities, with their investment strategies centered on the safety of asset cash flows and long-term capital value. Although foreign institutions continued to maintain a certain level of interest in Beijing investment market, their decision-making cycles were generally prolonged or even paused due to the impact of economic uncertainty as well as interest rate and exchange rate fluctuations. Since the beginning of the year, apart from the rental housing property purchased by Invesco and the CBC Daxing Life Sciences Park transaction, no other notable deals involving foreign institutions have been recorded. According to Jessie Xu, Operations Director of China and Head of Capital Markets North China, JLL, "The market is primarily driven by domestic investors, with investors constantly focusing on certain property sectors. The majority of institutional investors place greater emphasis on asset stability, security, and operational capabilities."

^{Note: Prime Retail refers to the Urban market.}  

The overall consumer retail market is under sustained pressure in 3Q25, as F&B tenant turnover picks up pace amid the popularity of emotive consumption. From January to August, total retail sales fell by 5.1% y-o-y, a steeper decline than in the same period last year. While closures of F&B stores became more prevalent, demand for new leases continued to surge. This accelerated brand churn and intensified competition. Although leasing demand from ACG and Outdoor brands slowed, their average store performance maintained steady growth. IP-driven consumption trends continued to thrive, with premium phone case brand Casetify opening stores in Taikoo Li South and Xidan Joy City. Additionally, French niche leather goods brand Polène debuted its first Chinese store in Taikoo Li North, while funeral products brand Guzong opened its first physical store in Sanlitun, offering a unique space for emotional release. The momentum from IP collaborations and fashion trends sparked by hit products also propelled many brands to regain sales traction.

Rental declines across the city deepen amid a market adjustment period. Economic volatility dampened consumer confidence and restricted spending appetite, which pushed brands to exercise caution in expansion and budgeting. Consequently, operators made greater rental concessions, leading third-quarter effective rents in the urban market to drop by 3.5% q-o-q.

"The transformation of consumption patterns will inevitably bring short-term pain. Combined with intensified market competition from the influx of new supply over the past two years, the y-o-y rental decline in both urban and suburban markets is expected to deepen this year," said Ji Ming, Research Director for JLL North China. "Operators are expected to actively adjust their tenant mix to meet evolving consumer trends, thereby upgrading the value of the retail property market."

Overall leasing activity slows in 3Q25 with new leases dominated by relocation demand. This was primarily due to landlords' focus on securing lease renewals and retaining existing tenants, which reduced transactional momentum. Compounded by relocation demand outside of Beijing, continued lease terminations, and downward adjustment of lease terms, the market's net absorption languished. As such, the overall vacancy rate rose to 30.1% in 3Q25, a 0.5% increase q-o-q. Despite weakened demand, cost-driven relocation was relatively prevalent, propelled by storage-intensive sectors like third-party logistics and retail which supported modest absorption in emerging sub-markets such as Pinggu.

Delivery schedule for some new supply slows amid current downward cycle. To alleviate absorption pressure, certain owners of new projects opted to postpone construction completion. Separately, other owners chose to deliver projects later than initially planned as they made proactive upgrades to specifications such as enhancing fire safety ratings to make their properties more competitive and facilitate pre-leasing.

Rental corrections in Beijing’s core market narrow the price gap between key submarkets. The Beijing logistics market recorded a 4.4% q-o-q decline in rents in 3Q25. Rental corrections were most pronounced across core projects, as established submarkets like Shunyi and Daxing saw quarterly declines exceeding 5%. The contraction in the historical rental price gap between different submarkets signalled intensifying competition. Ji Ming said, "This rental adjustment is conducive to unleashing pent-up market demand. Looking forward, manufacturing tenants such as those from the automotive sector, as well as pharmaceutical enterprises are expected to become key drivers, providing crucial support for the core market's bottoming-out and recovery."

Supply pulls back remarkably, with the steady absorption of projects launched earlier this year. Compared to the supply peak in 2Q25, there were only 240 units launched in new projects this quarter, indicating the supply stability of Beijing’s luxury apartment market. Although positive policies supported the stability of the primary market, transaction volume dropped to 790 units due to the decrease in supply. New projects launched in the first half of the year maintained a healthy sales pace, accounting for over 60% of transaction volume this quarter.

Upgrade demand becomes the key driver as high-end residential prices lower. The rise in supply across the high-end secondary residential market led landlords to offer significant discounts, causing prices to fall as sellers attempted to capitalize on the favourable policy environment to accelerate absorption by attracting upgrade demand. Landlords offered significant discounts, causing the price of luxury apartment projects to fall by 3.1% q-o-q, a slight expansion in decline compared to 2Q25. Celia Chen, Research Director for JLL North China said, "As the Federal Reserve embarks on a new interest rate cut cycle, China is also expected to adjust interest rate policy in a timely manner, and the improved financial conditions should spur buyers to make further decisions. Coupled with abundant selection of high-quality supply, upgrade demand is expected to be further unleashed."