How can a market with office vacancy around 25% also record its strongest first-half commercial property investment volume in 10 years?

That apparent contradiction captures where China’s commercial real estate market stands in 2026. Leasing demand is improving, investment activity is returning and new development is slowing. Yet rents are still falling, vacancy remains elevated and landlords continue to compete aggressively for tenants.

This is not a conventional rebound. It is a rebalancing.

Demand is coming back- but pricing has not
According to CBRE, nationwide office net absorption reached 570,000 sqm in Q2 2026, up 9% quarter-on-quarter. More
importantly, new set-up and expansion transactions increased by nearly 30% year-on-year in the first half, suggesting that demand is no longer being driven only by renewals, consolidations and costsaving relocations.

Shanghai shows the same direction. The city recorded 168,104 sqm of office net absorption in Q2, up 14% quarter-on-quarter and marking a sixth consecutive quarter of growth. TMT, finance and business services were the main sources of new demand, with internet companies and financial firms among the more active occupiers.

But stronger absorption has not yet translated into stronger pricing. Nationwide office vacancy remained around 25%, while average rents fell another 2.2% quarter-on-quarter, bringing the first-half decline to 4.0%.

The reason is simple: demand is improving, but there is still too much space chasing it. For tenants, that continues to create opportunities to upgrade building quality, negotiate more flexible lease terms or relocate to locations that would previously have been outside their budget.

Not all commercial property is moving together
The divergence becomes even clearer beyond the office sector.

China’s major shopping malls ended Q2 with average vacancy of 7.5%, only slightly lower than the previous quarter. Ground-floor rents fell 0.5% quarter-on-quarter and 1.0% during the first half. Retail property is therefore under pressure, but considerably less distressed than the office sector in many cities. The challenge is increasingly about tenant mix, operating performance and the ability of a mall to remain relevant to consumers rather than simply filling empty space.

Logistics tells a different story again. Nationwide logistics net absorption reached 2.73 million sqm in Q2, more than double the previous quarter, with third-party logistics companies accounting for 54% of new leasing. However, 2.13 million sqm of new supply was also delivered, and rents still fell 2.5% quarter-on-quarter.

In other words, leasing activity is returning faster than rental growth across several sectors. Occupancy is improving, but tenants remain price-sensitive and owners still have limited pricing power.

Supply is finally adjusting
One of the most important changes is occurring not in leasing, but
in development.

National Bureau of Statistics data for January to July show that investment in office development fell 21.9% year-on-year, while investment in buildings for commercial business fell 24.8%. New office starts were down 40.2%, as in construction of new office buildings.

These figures do not solve today’s vacancy problem, but they matter for tomorrow’s market. For much of the past decade, new supply continued to enter many cities faster than occupier demand could absorb it. The sharp slowdown in development indicates that the supply side is finally responding to weaker economics.

At the same time, 2026 is expected to be a peak year for Grade A office supply across the major Greater China cities tracked by Cushman & Wakefield. At the end of 2025, Grade A vacancy across those cities already stood at 25.4%. The adjustment will therefore take time, and the market is likely to remain tenant-favourable in the near term even as the longer-term pipeline begins to shrink.

Investors are moving before rents recover
Perhaps the most striking signal comes from the investment market.

CBRE recorded 109 commercial real estate investment transactions worth RMB 83.9 billion in Q2, up 39% from the previous quarter. Total first-half investment reached RMB 144.2 billion — a record for a first-half period.

Shanghai also saw improving activity, with 61 transactions worth approximately RMB 27.35 billion during the first six months of the year.

This does not mean investors expect an immediate rental rebound. A more likely interpretation is that repricing has brought some assets back into an investable range. Buyers are increasingly able to acquire properties at values that better reflect current rents, vacancy and financing conditions, while looking for returns through leasing improvement, repositioning and long-term asset management.

The important change is therefore not simply that capital has returned, but what that capital is looking for.

From Development to Operations
China’s commercial real estate market was once heavily shaped by development: acquire land, build, sell or wait for appreciation. In the current market, that model is much harder to sustain.

With rents under pressure, development slowing and investors becoming more selective, value increasingly has to be created after a building is completed.

For owners, that means tenant retention, flexible leasing, fit-out solutions, energy efficiency, amenities and active asset management matter more than before. For occupiers, current conditions provide unusual leverage to improve both cost and workplace quality. For investors, the opportunity is less about assuming that the market will lift every asset and more about identifying buildings where operating performance can genuinely be improved.

Recovery without a rebound
The first half of 2026 does not mark a return to the commercial property conditions China experienced a decade ago, and it probably should not be judged by that standard.

Instead, the market is showing the early signs of a healthier adjustment: demand is gradually recovering, new development is contracting, transaction activity is increasing and pricing is becoming more realistic.

Vacancy will remain high in many office markets and rents may continue to soften before stabilising. But the direction of travel is changing.

The next phase of China commercial real estate will be less about how much can be built, and more about how well existing buildings can be leased, operated and repositioned.

That is not a dramatic rebound. It may ultimately be something more useful: the beginning of a more disciplined commercial property market.