Core Insights - The Beijing office market shows signs of structural adjustment rather than a strong recovery, with net absorption slightly positive driven by cost-cutting relocations, masking a lack of new demand [1][3] - Continued rental decline (over 15% year-on-year) indicates a shift towards structural repricing, reflecting a change in market valuation logic [1][6] - High vacancy rates (close to 20%) and an upcoming supply peak (2026-2027) create a tenant-driven market, prompting a reevaluation of asset value and operational strategies [1][3] Structural Repricing - The significant drop in rental prices (Q1 down 4.7% quarter-on-quarter, down 19.7% year-on-year) suggests a structural value reassessment rather than a typical market cycle adjustment [6][7] - The shift in corporate strategies towards long-term cost efficiency reduces willingness to pay high rents, challenging the traditional "location is king" logic [6][8] - Owners are adopting strategies like rent reductions and long rent-free periods, but these have pushed effective rents to historic lows, indicating a new market expectation for rental levels [7][8] Demand Differentiation - Overall market demand appears mild, but there is significant internal differentiation, with TMT (especially AI and big data) and certain financial sectors showing resilience [9][11] - Existing tenants' relocations account for nearly 80% of new leases, indicating a focus on optimizing existing space rather than new expansions [11][12] - Demand is concentrated in specific areas, with locations like Lize attracting tenants due to price advantages and new building quality, while traditional core areas face tenant consolidation pressures [11][12] Strategic Insights for Market Participants - Market participants must accept that effective rents are unlikely to return to pre-pandemic highs in the short to medium term, necessitating adjustments in asset valuation models [8][17] - Owners should abandon broad leasing strategies in favor of targeted approaches that address specific industry needs, emphasizing customized products and strategies [14][20] - Tenants should leverage the current market conditions to negotiate favorable lease terms, particularly for those looking to upgrade or consolidate [17][20] Supply Dynamics - The relative scarcity of new supply in 2025 presents a brief strategic window, but this is not indicative of a fundamental market improvement [15][17] - A significant influx of over one million square meters of new supply is expected in 2026-2027, which could disrupt the current market balance [15][16] Evolving Tenant Market - The market is transitioning into a deep tenant market characterized by high vacancy rates and declining rents, reshaping the landlord-tenant relationship [18][19] - Competition now extends beyond rent to include factors like rent-free periods, renovation subsidies, and service quality [18][19] - Landlords must evolve from mere space providers to partners in value creation, focusing on tenant needs and operational efficiency [20][21]