APPD Market Report Article


August 26, 2022

Daniel Yao, Head of Research, China


RMB 50.0


Significant impact on retail business amid local COVID-19 outbreak

  • Shanghai’s COVID-19 outbreak has disrupted the city’s retail industry, with physical stores suffering major losses during the pandemic. Some cash-strapped small brands have closed permanently, and new leasing has been delayed. As a result, net take-up in the urban area fell to -172,700 sqm.
  • After businesses started resuming operations on 1st June, foot traffic and sales revenue have gradually recovered. Luxury brands led the recovery on the back of strong pent-up demand and delayed purchases. In addition, coffee and tea brands saw a surge in orders after the resumption of delivery services. Restaurants with outdoor seating saw a quicker recovery.

Delay in new supply as pandemic interrupts business activity

  • No new projects have reached completion. Progress for construction and leasing was delayed for most projects, due to the pandemic. In addition, several projects that were planned for completion in the second half of 2022 have been postponed to 2023.
  • Business disruptions amid the COVID-19 outbreak led vacancy in the prime market to rise 0.7 ppts q-o-q to 9.7%. Vacancy in the decentralised market rose from 9.2% to 10.0% as tenants with cash flow difficulties closed stores, especially those in the F&B, entertainment, and children’s education sectors.

Citywide rent declines

  • Rising vacancy and soft leasing momentum contributed to a citywide decline in rents in 2Q22. Prime ground floor rents fell 2.0% q-o-q. Decentralised rents fell 2.9%, mainly as a result of greater shares of F&B and experiential tenants, who were more greatly impacted by the outbreak.
  • Cap rates in both the prime and decentralised markets slightly decompressed. Investors are growing cautious in the face of challenges such as the local resurgence of the pandemic and the uncertain global economy.

Outlook: Retail recovery to remain gradual

  • Shanghai will likely see a gradual, moderate retail recovery over the near term as the risk of a rebound in COVID-19 weighs on consumer confidence. Slower leasing momentum and a large upcoming supply pipeline are anticipated to continue putting downward pressure on rents over 2H22.
  • Luxury brands, high-end skincare and perfume, auto showrooms, and coffee and tea brands are expected to be resilient. Landlords and tenants will likely place emphasis on outdoor spaces for safety and convenience. Some projects are likely to seize the chance to re-position or renovate, combining the shopping experience with art, wellness and even metaverse themes.

Note: Shanghai Retail refers to Shanghai's overall prime and decentralised retail markets.

Talk to us 
about real estate markets.