Leasing demand softens as brands turn cautious

• Growth in retail sales slowed further as consumers adopted more cautious attitudes, leading retail brands to dial back their pace of expansion. Net absorption in Shanghai’s urban area fell to -51,400 sqm in 1Q24. 
• Consumers valued quality even as they grew more price-sensitive. Affordable restaurants, bakery and beverage shops, home goods stores and domestic fast fashion retailers have all expanded to cater to this demand segment. We observed a more moderate expansion from luxury brands and automobile showrooms.

Vacancy further increases in decentralised market

• No new supply was delivered in the Prime or Decentralised markets in the quarter. The Prime market’s vacancy slightly decreased from 11.4% to 10.3% as some projects closed for renovation and repositioning. The Decentralised market’s vacancy increased from 12.2% to 12.5% amid slower leasing.
• The performance of different types of malls diverged as citywide leasing demand slowed. Regional malls catering to large catchments of residents tended to show greater resilience.

Citywide rents continue to decline

• With most brands still cautious, average ground floor rents in the Prime area fell 0.8% q-o-q to RMB 46.2 per sqm, per day, while Decentralised rents were down 1.1% to RMB 16.6 per sqm, per day. Landlords in the Decentralised market are feeling greater rent pressure amid intense competition and as certain tenants face operational difficulties.
• Link REIT acquired the remaining 50% interest in Shanghai Qibao Vanke Plaza for RMB 2.38 billion, becoming the sole owner of the project. The project’s property value was agreed upon at RMB 5.2 billion, equivalent to a unit price of approximately RMB 35,000 per sqm. 

Outlook: Consumers set to remain cautious

• Consumer preferences for quality and value are expected to support sectors including affordable restaurants, domestic fast fashion brands, supermarkets, discount stores and grocery retailers. Additionally, providers of spaces for sports and art events should remain active as they cater to consumers’ rising focus on spiritual wellbeing and experiences.
• A significant amount of new supply is expected to enter the market in 2024, which will bring greater pressure over the next three quarters. Shanghai’s retail market is likely to continue to face challenges in terms of rents and occupancy. We expect the gap in performance between different projects to widen.