News release

Beijing office market suffers blow from Covid-19, but ample stable demand to support recovery

JLL issues new whitepaper: “Navigating Covid-19: The Beijing Office Market Explained

August 27, 2020

Beijing, 27 August 2020 - The year 2020 began with the sudden outbreak of Covid-19 that spread across China and beyond, engulfing the whole world. The epidemic sparked off an unprecedented situation. Mandatory lockdowns and social distancing have forced companies everywhere to ask employees to work from home, ensuring their health and safety. This flexible and remote working in Beijing and other major cities worldwide has caused a heavy blow to the office market. Towards the end of the previous quarter, just as life had largely returned to normal in China, new “outbreak clusters" in June disrupted Beijing's plans to resume regular work and production. In the wake of this, by the end of June, the Grade A office market further suffered, with the overall vacancy rising to 14.0%, recording its highest level since 2010. Market average rents plunged 6.8% to 356 RMB per sqm per month – marking a five-year low. With Beijing serving as a key market within China, its direction towards the future is attracting enormous interest, not just locally and nationally, but also globally.

JLL carried out a thorough analysis of recent developments, tracking the demand and rent trends of the Beijing office market, as well as conducted an in-depth survey to understand the sentiments of market players, including landlords, tenants, and investors. JLL brings all of these valuable insights together in its latest whitepaper, Navigating Covid-19: The Beijing Office Market Explained, in an effort to help industry insiders through this difficult period. 

"Covid-19 has hit the market hard. There’s no denying that – but at the same time, we cannot ignore that office rents were already in decline from late last year, while vacancy rates were on the rise. While the pandemic has steepened the declines, there is some comfort in knowing that the market has ample stable demand to buoy it through this challenging time,” says Julien Zhang, Managing Director for JLL North China. "We anticipate the Beijing office market to be well on the road to recovery as early as the end of 2021, fueled by increasing demand from emerging industries, such as technology, healthcare, and finance."

Steady demand will ensure strong market support

According to the demand structure outlined in the whitepaper, large enterprises represent the steady and reliable ‘Fundamental Demand’ of office leasing in Beijing. On the other hand, medium-sized enterprises support the ‘Follower Demand’ group, whereas emerging enterprises that are actively expanding dominate the ‘Momentum Demand.’ In recent years, the market has benefited from consistent strong demand, with the average annual net take-up rate for new office buildings reaching 75% in their first year. This was mainly due to the rapid growth of enterprises, in both scale and financial strength, which fueled Momentum Demand. The policy of ‘Mass Entrepreneurship and Innovation’ gave birth to a range of new concepts such as fintech, Internet +, and the sharing economy, leading Internet giants such as Alibaba and ByteDance to expand their office footprints in Beijing. Moreover, with large amounts of financing, P2P finance companies, bike-sharing businesses, and co-working operators have also experienced explosive growth in the market.

However, in 2019, facing downward economic pressures and escalating US-China trade disputes, Momentum Demand gradually weakened in Beijing's office market. As such, the net absorption recorded last year was less than 100,000 square meters with an 80% year-on-year drop, while the vacancy rate rose to around 11.0%. Rents also stopped growing, even recording a 4.0% year-on-year decline.

As anticipated by Mi Yang, Head of Research for North China at JLL, “Current market conditions are tough, but manageable: we expect total net absorption for 2020 to drop further to some 75,000 square meters due to the added strains from Covid-19.” Mi Yang added, “But rather than focusing concerns on the virus, the majority of key stakeholders (60%) are more worried about the impact of the economic slowdown on demand. Yet when we look more closely at the market, we see that more than half of the office demand in Beijing comprises ‘Fundamental Demand,’ driven by state-owned enterprises, multinational corporations, and leading private companies. There is a reliable steadiness to this type of low-risk office demand, and this, in turn, provides strong support for the market, allowing it to operate with greater stability.”

Emerging industries and policy support to guide market recovery

Just as strong Momentum Demand led to a prosperous market in previous years, for ultimate recovery of the market, a new wave of Momentum Demand will be needed. The good news is that the commercial real estate industry has reached a strong consensus on the source of such demand. According to the JLL survey, given the resilient momentum of the technology sector during the epidemic and strong policy support, 90% of the respondents agreed that companies, in fields such as artificial intelligence, cloud computing, 5G, new infrastructure, online gaming, and live streaming, will be key to the recovery of Beijing office market as companies from these arenas further grow and expand. Meanwhile, Covid-19 has brought major development opportunities for healthcare and insurance industries. Driven by the successful holding of CIFTIS (the former "Beijing Fair", renamed in 2020), and the opening-up of Beijing's financial services industry, robust growth in demand from professional and financial services industries will continue. These industries are expected to become bright spots for future growth in the Beijing office market.

Leading office locations for the tech and finance industries also indicate that two policy-driven submarkets, Zhongguancun and Finance Street, will lead the future rebound in rents. According to JLL data, benefiting from stable and rigid demand, rents in Finance Street fell only once, during the global financial crisis in 2009. Even at that time, the decline was just less than 5%. Similarly, backed by strong policy, Zhongguancun has not experienced many dips. By contrast, in market-driven sub-markets such as the CBD, landlords have often found themselves forced to lower rents – by as much as 15% – under rising vacancy pressures. Therefore, under the current conditions, rents in market-driven submarkets may face even greater downward pressure ahead.

Rent decline may continue for 18 months; market players are still optimistic about the future

As the global pandemic continues, prolonging uncertainties in economic development, softening demand for corporate office space is a significant concern. How long will this downturn in the Beijing office market last? According to JLL’s whitepaper, more than 70% of industry insiders agree that the market has already entered a downward phase. However, they still hold a rational and neutral attitude towards current market conditions. On a ten-point scoring scale rating the market weakest at 1 and strongest at 10, respondents gave an average score of 4.9, with nearly one-third (28%) giving the market a pass (at 5.0 points). In policy-backed submarkets such as Finance Street and Zhongguancun, some landlords even gave rankings as high as 8.0 points, suggesting their optimistic attitudes despite the present situation.

In the short term, landlords and tenants generally expect the market to see a 5-10% reduction in rent this year. However, regarding longer-term trends for the market, opinions are more divided. While optimists believe recovery can be seen as early as the end of 2020, nearly half (44%) of the respondents expect the market to rebound at the end of 2021. Another 32% stated the rebound would have to wait until 2022 or even later. Meanwhile, after a thorough analysis, JLL concludes that the rent decline in the Beijing office market would last until the end of 2021 or even the beginning of 2022, as the impact of Covid-19 and the economic slowdown continue to dissipate. Following two stable years of growth expected in 2022 and 2023, the influx of more Momentum Demand is predicted to push rents back to an upward cycle by 2024.

"Impacted by a number of risks and challenges, including the epidemic, Beijing office rents are falling, but this will hardly be the case forever," Julien Zhang said, looking into the future. "The market has solid and reliable Fundamental Demand at its base to hold it up. At the same time, the city’s positioning as a key IT and financial management hub and for the country is encouraging more Momentum Demand to emerge. As Beijing further opens up to foreign participation and improves its business environment, supported by key projects like Universal Studios and major events like the Winter Olympic Games, its commercial real estate market, office buildings included, is bound to overcome the current difficulties and achieve a higher level of sustainable development."

Click here to download JLL’s whitepaper, “Navigating Covid-19: The Beijing Office Market Explained”.

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion in 2019, operations in over 80 countries and a global workforce of nearly 93,000 as of June 30, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit