Global investment banks (IBs) and capital markets are turning their attention to Greater China, the world’s largest manufacturing hub and the financial center of Asia. “Capital Hub” is a series covering news from China and the Greater China capital markets. From the mainland markets in Shanghai and Shenzhen to Hong Kong’s dollar liquidity hub and Taiwan’s semiconductor value chain, this series traces the flow of capital across Greater China and captures the current temperature and direction of the region’s markets as an Asian financial hub. [Editor’s Note]

[Edaily Marketin Reporter Won Jae-yeon ] The “Diamond Building,” located in Beijing’s Zhongguancun Software Park, has recently attracted significant attention from China’s artificial intelligence (AI) industry. This is because Zifu AI, one of China’s leading generative AI companies, purchased the entire building. The building was previously occupied by the IBM China Research Laboratory for over 16 years.

Zipu AI spent 361 million yuan (approximately 79 billion won) on the acquisition. With a total floor area of 22,700 square meters, the company plans to use the site as a research and development hub for large language models (LLMs) and computing technologies. Rather than simply leasing one or two floors of office space, the company has effectively purchased the entire building.

This transaction, in which a domestic Chinese AI company has filled the void left by departing foreign tech firms, symbolizes the generational shift taking place in the Zhongguancun office market. While offices across Beijing are standing vacant due to China’s economic slowdown, AI companies are actually flocking to Zhongguancun. Once known for its electronics markets, Zhongguancun has now transformed into a “Chinese Silicon Valley” where research labs, offices, and investment capital from Chinese AI companies are converging.

Beijing Remains Empty Despite Rent Cuts… Zhongguancun Is the “Lone Bright Spot”

According to global real estate consulting firm Knight Frank, the average net effective rent for Grade A office space in Beijing during the second quarter of this year was 219 yuan (approximately 48,000 won) per square meter per month, down 8.0% from the same period last year. The vacancy rate stood at 15.9%, meaning roughly one in every six offices is vacant.

Amid the ongoing real estate crisis, the vacancy rate itself has fallen slightly compared to a year ago. However, this is largely due to building owners lowering rents and extending rent-free periods to fill vacant spaces. This implies that few tenants are moving in at market rates.

Amid this situation, the atmosphere in Zhongguancun was quite different. The vacancy rate for Grade A offices in Zhongguancun stood at 8.2%, just half the Beijing average. The average rent also rose by 0.3% from the previous quarter to 50,000 won per square meter per month. Although the increase itself was not large, Zhongguancun was the only major business district in Beijing where rents rose. Zhongguancun accounted for a whopping 36.7% of Beijing’s total new office space demand in the second quarter of this year.

Offices Half the Size of a Soccer Field Are Flying Off the Shelves… Zhongguancun Attracts a Flock of AI Companies

Technology companies are the main drivers behind this surge in demand. In the second quarter of this year, technology and telecommunications firms accounted for 49.4%—nearly half—of the total office lease area in Beijing. Among these, AI and cloud companies made up more than half.

AI companies are also expanding their office space one after another. Xuanmiao Keji, which develops AI infrastructure and semiconductors, has set up a new office in the Inhe Building in Zhongguancun that spans 3,000 square meters (approximately 908 pyeong)—nearly half the size of a soccer field. It is large enough to accommodate hundreds of employees working simultaneously.

During economic slowdowns, it is common for companies to downsize their offices or move to outlying areas with lower rent. However, AI companies—for whom securing research talent is critical—are securing spacious offices in Zhongguancun even if it costs more.

The reason they insist on Zhongguancun lies not in the office buildings themselves, but in the surrounding area. Haidian District, where Zhongguancun is located, is home to a high concentration of universities—including Tsinghua University and Peking University—as well as research institutions affiliated with the Chinese Academy of Sciences. It is also a hub for major tech companies such as Baidu and Lenovo, as well as AI and semiconductor startups, venture capital (VC) firms, and government-backed industrial funds.

To draw a domestic analogy, it is similar to having Seoul National University and KAIST research institutes all located together on Teheran-ro in Gangnam. Companies can recruit researchers and jointly develop technology within close proximity, while also meeting investors and customers. This is why companies find it difficult to leave Zhongguancun, even if the rent is a bit higher.

Currently, there are over 1,300 AI companies based in Haidian District. The number of AI researchers stands at approximately 12,300, and there are 26 related unicorn companies. It is a self-sustaining ecosystem where talent and capital follow the companies, which in turn attract new startups.

Experts predict that demand for office space from tech companies in Beijing will continue and grow even further over the next three to five years. Huang Wei, Head of Knight Frank’s North and East China regions, commented, “Zhongguancun’s rebound is not simply the result of price competition, but is driven by the actual expansion needs of AI and semiconductor companies.”