China's AI Tenants Are Filling Offices — But 300 Million Square Meters of Empty Space Remain

The headlines are optimistic: DeepSeek, Alibaba, and their peers are signing leases, hiring engineers, and expanding across China's biggest cities. In Hangzhou, where DeepSeek is headquartered, new home transactions surged 81% in the two weeks after Lunar New Year 2025, and developers paid an average 45.3% premium for residential land — the highest since March 2018 [1]. The AI boom, embodied by Hangzhou's "Six Little Dragons" — DeepSeek, Unitree Robotics, Deep Robotics, BrainCo, ManyCore, and Game Science — has generated genuine economic momentum [2].

But a closer look at the data reveals a more complicated picture. China's office market is not recovering in any conventional sense. It is bifurcating: a thin layer of AI-fueled demand at the top, sitting on a vast foundation of structural oversupply that predates the pandemic and shows no sign of resolution before 2030.

The Numbers Behind the AI Leasing Wave

In Q1 2025, net absorption across China's 20 key office markets rose 35% year-on-year to 580,000 square meters [3]. Beijing, Shanghai, and Shenzhen accounted for the bulk of that gain, with year-on-year growth in net absorption ranging from 50% to 200% [3]. In Beijing specifically, over 70% of new leases in Q1 were signed by TMT (technology, media, and telecommunications) firms [3].

Source: JLL, CBRE

Data as of Jun 30, 2025CSV

The TMT sector's dominance in leasing is real and measurable. AI-focused companies saw a resurgence in leasing activity in Shanghai, Hangzhou, and Shenzhen throughout 2024 and into 2025, with the TMT sector taking a 38.5% share of total new leased area in Beijing's Q4 2024 [4]. Alibaba, for its part, has committed to RMB 380 billion ($53 billion) in cloud and AI infrastructure investment over three years — a figure exceeding its total spending on AI and cloud in the previous decade [5]. The company leased new office premises in Hangzhou's Future Sci-Tech City, covering an area of 980,000 square meters, with a lease term commencing March 2025 [6].

DeepSeek, valued at up to $45 billion in its first funding round with backing from Tencent and Alibaba, has opened dozens of job postings in Hangzhou and Beijing focused on artificial general intelligence R&D [7] [8]. But specific square-meter leasing figures for DeepSeek remain undisclosed, making it difficult to quantify the company's exact share of net absorption.

How Deep Is the Recovery?

Beyond DeepSeek and Alibaba, the leasing wave includes a broader cast. Hangzhou's "Six Little Dragons" — five AI and robotics firms plus game studio Game Science — are all expanding, and the Hangzhou municipal government has allocated 15% of its annual fiscal revenue to tech investments [2] [9]. Beijing hosts over 2,400 AI companies with 33,000 PFlop/s of deployed compute [10]. Shanghai has positioned itself as a national AI hub, with Xi Jinping personally calling on the city during an April 2025 visit to lead on AI development [10].

In Shenzhen, 880,000 square meters of net absorption in 2024 came with a caveat: 60% of that demand was self-use — companies moving into their own buildings rather than leasing from third-party landlords [4]. That distinction matters because self-use demand doesn't help the commercial landlords sitting on empty towers.

The 2024 nationwide net absorption figure of 2.5 million square meters across 20 key cities was actually down 1.6% year-on-year, even as 3.9 million square meters of new Grade A supply came online [4]. In other words, new supply exceeded demand by more than 50%.

The Structural Oversupply Problem

The optimistic leasing data must be set against the scale of China's office glut. Oxford Economics describes the situation as a "lost decade" for Chinese office markets [11]. The numbers support that assessment:

• All major Chinese cities currently have vacancy rates above 20%, with nearly half exceeding 30% [11].
• Over 300 million square meters (3.2 billion square feet) of office space is currently under construction or on hold — equivalent to roughly 10 years of average supply delivery [11].
• Property values have fallen 15% to 30% from peak levels [11].
• For two decades, developers started more office projects than they completed annually, except in 2023 [11].

Source: CBRE, Cushman & Wakefield, JLL

Data as of Jun 30, 2025CSV

The contrast with comparable Asian tech hubs is stark. Seoul's office vacancy rate stood at 2.8% in Q1 2025 and 3.7% in Q4 2025 [12]. Singapore's CBD Grade A vacancy was 6.7% in Q4 2025 [13]. Meanwhile, Shanghai's overall vacancy reached 23.6%, Shenzhen hit 25%, and even Beijing's Grade A market — the tightest in China — sat at 12% [3] [14].

Capital Economics expects China's office market weakness to persist through at least 2027, driven by weak economic growth, cautious corporate hiring, and continued new supply [15]. Oxford Economics goes further, stating that "most markets won't require any new office space for at least five years" and that elevated vacancy rates are "almost guaranteed to extend beyond 2030" [11].

Rents Are Still Falling

Even as AI tenants sign leases, rents continue to decline — in some cases steeply. In 2024, 19 of 20 major cities tracked by JLL experienced accelerating rent declines [4]. Beijing led the decline at -16.1% year-on-year, followed by Shanghai at -14.7%, Shenzhen at -9.3%, and Guangzhou at -7.5% [4].

Source: JLL China Office Leasing Guide

Data as of Dec 31, 2024CSV

In Shanghai, average monthly rental levels fell to RMB 212.6 per square meter — an 8.2% year-on-year decline as of Q2 2025 [14]. Cost-driven demand was the dominant factor in leasing activity, with landlords offering increased flexibility and rental concessions to attract and retain tenants [4]. This is a tenant's market, and the AI companies signing leases are doing so with significant bargaining power.

Who Benefits — and Who Doesn't

The AI leasing wave is not distributed evenly. A clear "flight to quality" pattern has emerged: Grade A space in prime locations of Tier-1 cities has shown greater resilience, with some submarkets in Shanghai and Shenzhen seeing modest rent stabilization [14]. But secondary offices in lower-tier cities face vacancy rates approaching 35% [11].

The landlords benefiting most are a mix. State-owned developers and entities like Shanghai Land Group and Lujiazui Properties are prominent in China's emerging commercial REIT market, with the China Securities Regulatory Commission launching a commercial property REIT pilot in December 2025 [16]. The Shanghai Stock Exchange accepted applications for eight commercial REITs within a month, expected to raise an estimated RMB 31.5 billion ($5.77 billion) [16]. Singapore's CapitaLand Investment became the first foreign firm to issue a retail REIT in China [17].

But the distressed developers that defined China's property crisis — Evergrande, Country Garden, China Vanke — are largely absent from this story. Evergrande was delisted from the Hong Kong Stock Exchange in August 2024 after a court-ordered liquidation, owing more than $300 billion [18]. Country Garden is working through a $13 billion offshore debt restructuring [19]. These firms hold significant commercial portfolios, but their financial distress means they cannot invest in the upgrades needed to attract AI tenants to older buildings. The AI leasing boom is happening in spite of, not because of, the broader property sector.

Source: World Bank Open Data

Data as of Dec 31, 2024CSV

Echoes of the 2014–2018 Internet Boom

This is not China's first tech-driven office cycle. During the 2014–2018 internet boom, technology and finance companies accounted for 41.7% and 21.9% of total office transaction area, respectively [20]. Companies like Tencent, ByteDance, Alibaba, Huawei, Meituan, and Amazon signed major leases across Tier-1 cities [20]. Real estate investment peaked at 15% of GDP in 2014 before the sector cooled [21].

That cycle ended with a correction. The current cycle shares troubling similarities: concentrated demand in a few sectors, geographic concentration in a handful of cities, and massive new supply coming online regardless of demand signals. By the end of 2025, 14 key cities will see up to 12 million square meters of new supply — about 14% of existing stock [4].

The key difference this time is scale of the oversupply. The 300 million square meters under construction or on hold dwarfs anything from the previous cycle [11]. Even if AI leasing continues at its current pace, the math does not close.

Geopolitical and Regulatory Risks

Several factors could reverse even the limited progress the AI sector has made in stabilizing specific submarkets.

U.S. export controls remain fluid but threatening. While the Trump administration scrapped the AI Diffusion Rule in May 2025 and relaxed controls on some chips including Nvidia's H200 processors, Congress has pushed to tighten restrictions through the Chip Security Act [22]. DeepSeek has already experienced the downstream effects: after releasing its R1 model, the company had to restrict API access because it could not provide enough inference compute to meet demand — a constraint likely linked to chip supply limitations [23].

Alibaba's regulatory history adds another layer of uncertainty. Although the State Administration for Market Regulation formally ended its three-year antitrust review of Alibaba in August 2024, praising the company's compliance efforts, the record $2.5 billion fine imposed in 2021 and the resulting market value destruction demonstrated how quickly government scrutiny can derail expansion plans [24] [25].

DeepSeek's commercial trajectory is unproven. The company is raising its first-ever external funding round, with China's state-backed chip investment fund in discussions to lead the round at a valuation of approximately $45 billion [8] [26]. But DeepSeek's revenue model is not yet established at scale, and its ability to sustain large office commitments depends on commercial growth that has not yet materialized.

The Human Stakes

China's real estate sector previously generated nearly one-third of national economic activity [19]. The downturn has had measurable employment effects: real estate developers employed approximately 2.5 million people as of 2022, and that number has declined [27]. Construction employment growth has slowed alongside the property downturn, and the broader labor market — particularly for young graduates — has been affected by high unemployment and low starting salaries, which Oxford Economics cites as drivers of net population outflows from Shanghai and Shenzhen in 2023 [11].

Real estate investment fell 10.7% in the first five months of 2025, marking continued contraction [28]. From January to November 2024, newly started construction totaled approximately 673 million square meters — a significant decline from prior years [29]. The property management and ancillary services workforce — security guards, cleaning staff, building maintenance — depends directly on occupied office space. In submarkets where vacancy exceeds 30%, these jobs are among the most exposed.

China's construction market remains the world's largest at approximately $4.82 trillion in 2025 [28], but the shift toward completing existing projects over starting new ones means fewer new positions for migrant construction workers who have historically depended on the sector.

What the Data Actually Shows

The AI leasing story is real but narrow. TMT firms are the dominant source of new demand in Tier-1 office markets, and companies like DeepSeek and Alibaba are genuine catalysts in specific submarkets — particularly Hangzhou and Beijing. Net absorption turned positive in Q1 2025, and the 35% year-on-year increase is meaningful [3].

But the structural picture has not changed. With 300 million square meters of supply in the pipeline, vacancy rates above 20% nationally, rents still falling double-digits in top cities, and the distressed developers unable to participate in the flight-to-quality trend, the AI boom is not a market recovery. It is a lifeline for a specific segment of the market — prime Grade A space in the right cities — while the broader market continues its prolonged correction.

The precedent of the 2014–2018 internet boom, which also concentrated demand in a few sectors before unwinding, suggests caution. Whether this cycle holds depends on factors largely outside the real estate industry's control: U.S. chip policy, Chinese regulatory posture toward tech companies, and whether AI firms can convert venture capital into sustainable revenue at a pace that justifies their office footprints.