In the first half of 2026, the pace of new office supply in China's first-tier cities slowed down, providing a brief respite from the pressure of existing stock absorption and leading to a slight decline in overall vacancy rates. According to Jones Lang LaSalle, the total new supply in these cities reached 802,000 square meters, a significant drop from the same period last year. This contraction in short-term supply created a favorable window for market recovery. However, looking at the full year, supply pressure remains substantial—303.6 million square meters of new space is expected to hit the market in the second half of 2026, sustaining a high-supply year and intensifying competition.

Leasing activity rebounds, new growth drivers fuel demand

Leasing activity in first-tier city Grade A office buildings steadily improved in the first half of 2026, signaling a broad market recovery, though structural divergence between submarkets and buildings persisted. In Shanghai, the market benefited from corporate upgrade-driven leasing demand, with a notable recovery in transactions for high-quality Grade A projects. Financial and professional services firms remained core demand drivers, while tech internet companies, particularly in artificial intelligence and gaming, provided continuous support. In Beijing, tenant demand favored small spaces of 300 to 500 square meters, with a preference for fully furnished, move-in-ready offices. Amid slower overall demand growth, the Zhongguancun area attracted emerging tech firms like quant funds and AI companies due to its strong industry cluster. Shenzhen saw sustained net absorption growth, with significant quarter-on-quarter and year-on-year increases. Hard tech and new economy sectors, such as smart hardware, AI applications, and brands going global, accounted for nearly 30% of total leasing transactions. In Guangzhou, emerging industries—including gaming, beauty, and cross-border e-commerce—driven by overseas expansion and AI, contributed 65% of upgrade and expansion deals. In tier 1.5 and second-tier cities, structural recovery was also evident, with emerging industries as key drivers. In Chengdu, AI, software development, and gaming firms maintained active leasing, with gaming companies expanding or relocating due to tech upgrades and overseas expansion. In Nanjing, tech internet firms like data services and software, along with life sciences companies like medical devices, boosted Grade A office absorption. In Hangzhou, AI, gaming, retail, e-commerce, and entertainment sectors like live streaming and short dramas drove active leasing. Wuhan saw stable demand, with AI and chip firms, as well as medical and life sciences companies, showing strong leasing performance.

Short-term supply slows, but high levels persist in second half

In the first half of 2026, the pace of new office supply in first-tier cities slowed, easing stock absorption pressure and slightly lowering vacancy rates. The total new supply of 802,000 square meters was a significant drop from last year, creating a temporary window for market repair. However, supply pressure remains high for the full year, with an expected 303.6 million square meters of new space in the second half, maintaining a high-supply pattern and increasing competition. In Beijing, no new projects completed in the first half, but future supply will put competitive pressure on existing buildings. The second half is expected to see about 700,000 square meters of new supply, with pre-leasing already underway, directly challenging existing stock. Shanghai, Shenzhen, and Guangzhou saw slower new supply in the first half, narrowing vacancy rates. But with a surge in new supply in the second half, vacancy rates are likely to face upward pressure again. In contrast, tier 1.5 and second-tier cities showed divergence in new supply. In Chengdu, multiple Grade A projects completed in the first half, totaling 99,000 square meters. Nanjing saw only one new Grade A project, easing supply pressure and lowering vacancy rates. However, competition among landlords remains intense due to last year's supply surge and expected new projects. Hangzhou experienced a concentration of new supply in the first half, intensifying competition but also stimulating upgrade and relocation demand. Wuhan saw relatively stable supply, with nearly 200,000 square meters of new supply in the first half, and an expected 210,000 square meters in the second half, spread across four submarkets, still facing absorption challenges.

Rent declines narrow, structural divergence persists

Rents for Grade A offices in major Chinese cities remain in a structural downward cycle. In Shanghai, Guangzhou, Shenzhen, Chengdu, Wuhan, and Hangzhou, average rent declines ranged from 2% to 4% in the first half. Nanjing and Beijing saw larger adjustments, with cumulative declines of 5.0% and 4.2%, respectively. Notably, signs of market marginal improvement have emerged, with most cities seeing narrowing month-on-month rent declines. Some mature core submarkets have already stabilized rents. Meanwhile, benchmark buildings in prime locations with strong operations and high occupancy rates are seeing bargaining power gradually recover, with more rigid lease terms. The scarcity value of quality assets is re-emerging, as the market shifts from a one-sided concession phase to a rebalancing of supply and demand. Looking ahead to the second half of 2026, the office market in core cities will continue a K-shaped structural recovery, with divergence: prime, high-quality, well-operated projects in core locations are stabilizing or even recovering, while non-core or general assets face ongoing pressure from supply and demand selection. On the demand side, new economy sectors—such as AI integration, corporate overseas expansion, gaming, new retail, and smart hardware—will continue to drive leasing growth. However, ongoing supply additions will keep overall rent under pressure, with structural divergence between submarkets and projects expected to widen further.