Overall rents continue to drop significantly across the city; low rents sustain leasing activity. Overall demand witnessed a slight increase, as the impact of recent quarters’ rental plunge effectively contributed to transaction volume. However, incremental leasing demand remained highly constrained, with the majority of Grade A office market demand driven by upgrades and relocations of existing tenants. In 1Q25, leasing demand from the TMT sector was primarily fuelled by the AI arms of TMT giants and some gaming firms in Zhongguancun and Olympic Area. Among professional services enterprises, small and medium-sized domestic law firms exhibited notable performance compared with other sub-sectors.

Vacancy rate drops slightly to 12.4%. The overall Grade A office vacancy rate decreased 0.2 percentage points q-o-q to 12.4% in 1Q25, primarily attributed to the settlement of new deals in Lize at comparatively low rental levels. The recently completed National Financial Information Building project in Lize absorbed considerable vacant space in 1Q25, mainly driven by entities related to the owner. The impact of new leasing and relocations in other submarkets was offset by space reductions and surrenders by existing tenants, leading to a limited overall effect on the destocking process.

Rents decline following the precipitous drop observed in the previous quarter. Rents persisted on their downward path, falling by 4.7% q-o-q and 16.1% y-o-y, with falls continuing to be witnessed in all submarkets. While rental discounts remained the primary consideration for tenants making leasing decisions, landlords will likely persist to compete fiercely in terms of other complimentary services, exploring further possibilities in offering add-on services such as access to shared meeting rooms and gyms. “As overall rents are expected to continue to experience a sharp citywide decline over the coming quarters, an annual rental decline of 14.8% is forecast for 2025,” said Michael Zhang, Senior Director of Office Leasing Advisory for JLL Beijing. “By the end of 2025, average net effective rents in the Grade A market are anticipated to fall to RMB 214 per sqm per month. This low-rent environment will provide tenants with a wide array of high-quality office space options at affordable rates.”

Note: Prime Retail refers to the Urban market.

The lack of consumer confidence continues to weigh on leasing demand. According to data released by the Beijing Municipal Bureau of Statistics, the consumer confidence index has been in decline since the second half of 2024 and has yet to recover to high levels. This led to vacancy pressure in some retail projects and more cautious retailer expansion strategies, however cost-effective F&B retailers and ACG formats providing emotional value demonstrated strong resilience in the sluggish market. These two categories accounted for 43.1% of total new store openings in Beijing’s retail market during 1Q25, becoming major demand drivers for vacant space absorption.

Supply moderates while vacancy rates stabilize. Only 50,000 sqm of new supply entered suburban markets in 1Q25, with no new projects in urban areas. The significantly slower supply pace created favourable conditions for absorption of existing vacancies, and most landlords effectively maintained occupancy rates through flexible strategies including rent reductions and customized leasing terms. The urban vacancy rate edged up a mere 0.4 ppts q-o-q to 5.6%, remaining within a healthy range.

Landlords actively respond with various measures as the market experiences a downward trend. Facing weakening demand, landlords widely adopted flexible leasing strategies including renewal discounts, short-term lease adjustments, and extended rent-free periods to stabilize occupancy. This led to a 2.0% q-o-q decline in effective rents in urban markets during 1Q25. The 2025 National People’s Congress has allocated RMB 300 billion in ultra-long-term special treasury bonds for consumption stimulus, doubling the 2024 fiscal commitment. “The new stimulus policy package announced during the 2025 ‘two sessions’ is expected to spur initiatives that boost consumer spending and leverage a steady recovery in leasing demand. As policy effects take time, landlords are likely to offer more appealing leasing strategies to attract tenants. Rents are predicted to remain on a downward trend throughout the year, with Urban rents forecast to decrease by 7% y-o-y,” said Ji Ming, Research Director for JLL North China.