Sizeable transactions from F&B sector leads to booming demand

• Total retail sales grew 29.0% in May, which had a positive impact on retailers’ outlook for expansion. Among them, the F&B sector stood out, accounting for 49% of the newly-leased area in Beijing during the quarter. F&B retailers have efficiently responded to the recovery in consumer demand by committing to new store openings.
• Meanwhile, the fashion sector witnessed an increase in leasing transactions, accounting for 27% of the total newly-leased area in Beijing, up by 9 ppts from the ten-quarter average, primarily driven by niche-market designer brands. Moreover, children’s education and entertainment retailers started to recover and previously-surrendered spaces were gradually absorbed in 2Q23.

Largest quarterly new supply since 2018 enters Suburban market

• In the second quarter of 2023, three new projects opened in the Suburban market with a sum area of 301,700 sqm, making it the largest quarterly supply since 1Q18. With high commitment rates in new projects and increased demand in the market, Urban and Suburban markets both saw a vacancy rate decrease, registering 6.2% and 7.6%, respectively.
• All of the new projects have been developed by major market players, such as COFCO, Sino-Ocean Group and China Resource Land. With their well-planned market positioning and tenant mix, these new projects achieved remarkable operational performance. On the first day of opening, MixC Xisanqi attracted 80,000 customers and generated total sales of RMB 10 million. 

Overall rents on a rebound

• The resurgence in foot traffic and the growth in consumer spending have significantly improved landlord confidence. Some landlords at leading projects raised their rents, especially for their newly-signed F&B leases, while some landlords started testing the waters with slight increases in asking rents, aiming to adjust their rents up to 2021 levels.
• In the quarter, Urban rent increased by 0.7% q-o-q, while Suburban rent rose by 0.6% q-o-q. The Beijing retail market may be at a turning point, ending a three-year-long cycle of declining rents despite fluctuations. 

Outlook: Rents are tipped to rise at a moderate pace

• By the end of 2023, the rent growth rates in Core and Urban markets are forecast to be at 1.5% y-o-y and 2.0% y-o-y, respectively. Overall rent is expected to return to the level of 2021 by the end of 2024.
• In 2H23, supply is expected to peak at 1.3 million sqm in Beijing’s retail market. As promising progress has been observed in the pre-leasing of upcoming projects, limited vacancy pressure will be added to the market. Currently, nearly all upcoming projects scheduled to open in the next quarter are already fully leased while in the final stages of fit-out or undergoing trial operations.