APPD Market Report Article


August 26, 2022

Silvia Zeng, Head of Research, South China


RMB 311


Updated domestic fashion brands become the new facade

  • The consumption recovery stimulated stable growth in demand across various precincts. Alongside the emergence of China-Chic, several domestic fashion brands have established their first stores in Guangzhou. Local brand BENLAI has upgraded successfully and entered OneLink Walk in Tianhe North, setting up its first offline flagship store with approximately 4,000 sqm.
  • In contrast, international fast fashion brands have continued minimising their physical presence. Examples include Zara and its subsidiary Zara Home withdrawing from OneLink Walk and Miss Sixty leaving several buildings. Shopping malls also faced the gradual withdrawal of popular catering brands. Nevertheless, beverage brands such as M Stand and Peet’s Coffee have set up several branches in 2Q22.

2Q22 witnesses the first mall opening in 2022

  • One new shopping mall, U-Fun, was introduced to Guangzhou’s retail sector in the quarter, adding 45,000 sqm to stock. It is located in the Knowledge City in Huangpu district, and positioned to cater to the local community by providing relevant catering and retailing services.
  • Owing to continuous updates and renewals of commercial brands, vacant store spaces have been rapidly filled by brand expansions. Moreover, several suburban developers have engaged in space integration to welcome large-scale crossover collection stores. As a result, urban vacancy rate dropped by 0.3 ppts q-o-q, while suburban vacancy levels stayed comparable to 1Q22.

Top shopping centres continue to benefit from rental premiums

  • Rental polarisation persisted, with prime shopping malls on Tianhe Road continuing to take advantage of rental premiums brought about by the concentrated retail resources. A few buildings have scored higher rents and popularity through the introduction of trendy F&A and F&B anchor tenants as replacements for fast fashion brands. Conversely, suburban rents continued to edge down.
  • In general, China’s domestic retail market is still suffering from sporadic COVID-19 upticks and faltering consumption. Institutional investors, who are insisting on high yields, have lower expectations on capital values than property sellers, resulting in a fairly tranquil capital market environment in the quarter.

Outlook: Cost-saving to remain the mainstream retail strategy

  • Guangzhou, being the only tier 1 city in China with steady total retail sales in the January to May 2022 period, owing to its effective COVID-19 measures, is likely able to support the restoration of retail sentiment. Mid-to-high-end consumption has the potential to rise, enabling future rebranding of prime shopping malls.
  • About 450,000 sqm of new retail space is expected to open to the public in the next 12 months, most of which will be positioned in emerging submarkets, leading to a slight anticipated increase in the overall vacancy rate. Although the overall rental demand is expected to speed up, general retailers still adopt a cost-saving strategy, giving rise to challenges for rental lease negotiations.

Note: Guangzhou Retail refers to Guangzhou's overall prime retail market.

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