APPD Market Report Article
GuangzhouMay 31, 2022
Most retailers stay cautious with gloomy sales prospects
- Overall leasing demand remained tepid as many F&A retailers are wary about future offline sales. Only a few domestic sportswear brands gained traction to expand. For example, Anta, which sponsored the Beijing Winter Olympics, set up several new stores as it is rapidly gaining ground among young consumers with its ‘China chic’ athleisure design.
- In addition to bubble tea and coffee brands, as well as Chinese fast-food chains that continue to set up new stores, novel Chinese pastry became increasingly popular with a few emerging brands. For example, venture capital backed brand Tiger Attitude penetrated suburban malls.
Vacancy pressure remains still due to slack leasing activity
- There were no new completions in 1Q22.
- Both urban and suburban vacancy rates dropped only slightly in the quarter as the leasing activity was faltering. Although a few suburban malls owned by experienced developers were able to fill up some vacant spaces, vacancy pressure continued to mount in other suburban malls, mainly in Panyu, due to sluggish sales.
Lukewarm demand weighed on rental growth
- Urban rents dropped slightly as many malls had to lower rents due to mounting vacancy pressure, although a few mid-to-high-end malls in Tianhe North were able to hold their rents firm. Suburban rents edged down as most vacant spaces were filled by tenants with relatively lower rental affordability such as fast-food chains.
- Although some debt-crippled developers were keen on selling their retail assets, potential buyers with increasing bargaining power kept a wait-and-see attitude and asked for higher yields for those non-core assets in suburban areas, impeding them from transacting in the quarter.
Outlook: Retailers to face uncertainty amid new COVID-19 flare-ups
- Although Guangzhou tightened COVID-19 restrictions swiftly to contain the flare-ups in April, several uncertainties surrounding the duration and potential impact on the retail market mounted, further weighing on already fragile retailer sentiment. Leasing demand is expected to be modest as most retailers will stay vigilant about opening new stores due to a bleak sales outlook in the short term.
- Around 120,000 sqm of new supply is expected to enter the market in 2022. Although future supply is limited in the near term, urban vacancy rate will only drop moderately due to tepid demand, while suburban vacancy will not improve much in the short term and the anticipated rental growth will likely still face headwinds.