Footfall recovery stimulates F&B demand; luxury shows resilience

• Footfall in shopping malls increased during festivals, while sales revenue growth lagged, leading to cautious sentiment in the leasing market. The acceleration of F&B consumption drove up leasing demand, with drinks and chain Chinese restaurants contributing to the majority of new store openings.
• The luxury market showed resilience. Prime projects continued to upgrade their tenant mixes, bringing in high-end fashion and beauty brands. For example, luxury brands Gucci and Bottega Veneta committed in K11, and luxury cosmetics brand Aesop opened its second store in Guangzhou at Parc Central.

One new shopping mall enters the market

• COCO Park in Liwan held its grand opening in 1Q24, adding 116,000 sqm of new supply to the market. The project is located in an emerging business district in Liwan, which should help improve the retail ambiance in the area.
• The Urban vacancy rate was up 1.3 ppts q-o-q to 6.8% due to the new project. Some projects in the Suburban market continued to experience adjustments and store closures, causing the vacancy rate to increase by 0.5 ppts q-o-q in the absence of new supply.

Rent concessions to attract and retain tenants become more common

• In a tenant-favourable market, an increasing number of landlords were willing to offer rent concessions to attract brands in exchange for stable occupancy. Urban rents recorded a slight decline, registering -0.3% q-o-q on a chain-linked basis, while Suburban rents fell by 1.3% q-o-q due to greater destocking pressure.
• The retail property investment market in Guangzhou was quiet, with no shopping malls transacting during the quarter. Considering the slow recovery of the leasing market and the uncertainty of rent growth, experienced investors required higher investment yields for such properties.

Outlook: Top projects to show resilience and help market recovery

• New supply is expected to be limited in the next three years, which will help balance supply and demand. Project performance is likely to continue to diverge. Top projects are expected to show resilience in terms of brand attraction and sales, driving steady rent growth. Suburban projects are anticipated to focus on destocking with flexible strategies.
• While demand has not yet fully recovered, experienced operators are trying to stabilise asset values by upgrading brand hierarchy and creating higher-quality property attributes. Superior asset quality is expected to become the cornerstone to help projects navigate market cycles and for resilient growth.