Beijing: 5 January 2023 – “Beijing’s commercial real estate market experienced a series of twists and turns in 2022. Although the market did not see an upswing at the end of the year, the recovery of the economy and market activity is expected to accelerate with recent major adjustments to the Covid-19 control policies,” said Julien Zhang, China Chief Strategy Officer and Managing Director for North China, JLL. “It takes time for the market to set a solid foundation for recovery. The year 2023 is expected to demonstrate an increasingly clear sign of stabilisation.” 

The Grade A office market saw an expansion of its rent decline. Covid outbreaks have led to further contraction of leasing demand in 4Q22, and the annual net absorption figure dropped by 81% year-on-year. In the investment market, the total transaction volume decreased by 57% compared to 2021. The types of properties transacted became more diversified while business parks and logistics received increasing interest from investors. Demand in the retail market was further affected by the Covid-19 situation. Several retail projects postponed their opening date due to delays in construction schedules and pre-leasing progress. The industrial market recorded a slight increase in rents amid the downtrodden economy and three new projects entered the market. The hotel market remained sluggish in the second half of 2022, August being an exception, while the supply of upscale hotels increased slightly in the second half of 2022. Although the sales activity in the high-end residential market was hindered in 4Q22, the annual sales volume hit a five-year high.
 

Note: Prime Retail refers to the Urban market. *New Supply is inclusive of the Suburban market. 

Retail market recovery remains sluggish as consumption growth declines. In the fourth quarter, the local retail market was affected by the Covid outbreak in November as demand weakened. For example, F&B and fashion sectors continued to report shrinking profits, further delays on expansion plans, or even surrendering of leased spaces. Those two sectors accounted for more than 50% of the total space surrendered in Urban shopping malls in 4Q22. However, several sectors continued to expand under downward pressure in the fourth quarter as sportswear and NEV retailers were actively seeking leasing opportunities. At the end of 2022, the loosening of Covid restrictions is expected to boost market activities over the short-to-mid-term.

Several projects announce to postpone of their opening. There was no new supply in the fourth quarter – several malls were previously set to enter the market in 4Q22 but failed to open on schedule due to the distraction of Covid. Many future projects were also reported to postpone in the quarter, due to delayed construction schedules or pre-leasing progress.

As a number of tenants surrendered space to landlords, overall market vacancy levels climbed, with Urban vacancy rate further rising by 0.8-ppt to 7.9% and Suburban vacancy rate further increasing by 1.0 ppts to 10.1%. 

Rents decline continues in the downward market trend. As leasing demand further weakened, overall market rents continued to decline. An increasing number of landlords are willing to offer lower rents and more flexible terms to attract retailers and stabilize project performance. Urban rents recorded the largest quarterly decline in 2022, registering at -2.6% q-o-q (-4.4% y-o-y), while Suburban rents dropped by 2.9% q-o-q (-6.2% y-o-y). 

“Despite the short-term disruption of the exit wave of cases, the city already started to witness several positive signals in the last week of December, such as the increase of customer foot flow at restaurants. This is likely to boost market confidence and elevate expectations in 1H23. Rents are forecast to rebound in 2H23,” said Ji Ming, Research Director for JLL North China. 
 

Beijing’s high-end residential market cools in the fourth quarter. As transaction activity stalled temporarily, luxury apartment sales fell sharply in 4Q22, down 32.7% q-o-q. However, with the support of high sales in the first three quarters, the annual sales volume in 2022 increased by 66.9% y-o-y. Developers were hindered from launching new projects in the fourth quarter by a new wave of Covid-19. Luxury apartment supply declined, with a total of 2,178 new units launched, down 14.5% q-o-q. However, cumulative new supply for the year reached 9,610 units, up 5.2% y-o-y. Due to the lack of new projects launches, transactions in 4Q22 were mainly destocking of existing projects.

Positive policies may help to further release demand. In 4Q22, as developers introduced preferential policies to boost sales near the end of the year, sale prices dropped by 0.3% q-o-q. “Continued favourable policies sent more positive signals to the market and are expected to boost buyers’ expectations. The recovery of market activity will attract those buyers with a ‘wait-and-see’ attitude. The suppressed demand during the pandemic will gradually be released, supporting sales volume in the following quarters,” said Mi Yang, Head of Research for JLL North China.