APPD Market Report Article


September 4, 2023

Silvia Zeng, Head of Research, South China


RMB 294


Catering leads the recovery of demand for retail spaces

  • Dining and hotel lodging greatly supported the recovery of Guangzhou’s offline consumption in the second quarter, as the economy embarked on the post-pandemic new normal. Leasing demand from the food and beverages sector remained strong; in particular, restaurants specialising in regional cuisines have opened up at multiple locations.
  • However, leasing demand from other sectors remained tepid. Due to a time lag in the recovery of consumer confidence, brands paid closer attention to the rent-to-sales ratio at each offline store and were less inclined to branch out. However, certain local, affordable fashion brands have taken the opportunity to establish their presence in prime shopping centres.

Citywide vacancy improves remarkably

  • Joy City Property’s light-asset project debut in Guangzhou launched at the end of June, targeting young consumers around Science City in the Huangpu District specifically. This project has a total retail GFA of 60,000 sqm and achieved close to full occupancy at its opening.
  • As lease negotiations that started at the beginning of the year gradually concluded, a large wave of scheduled store openings was observed across the city in the quarter, of which food and beverage operators accounted for the most space leased. As a result, Guangzhou’s overall vacancy rate was greatly lowered by 0.9 ppts q-o-q to 6.3%, with both Urban and Suburban markets benefitting.

Uneven leasing demand recovery stalls overall rent growth

  • Despite the steady rent growth in Guangzhou’s most core Tianhe North District, landlords in most other business districts lacked the bargaining power to raise rents since the majority of retailers were still awaiting a general revenue recovery, except for catering providers. As a result, rents continued to decline in most regions.
  • Some domestic institutional investors have started to regain interest in Guangzhou’s retail properties from a pre-REITs perspective. However, they generally demand a higher investment yield with shopping centres for risk mitigation. Currently, very few properties for sale in Guangzhou match investors’ criteria.

Outlook: Rent growth may be limited by uneven consumption recovery

  • Six shopping centres, with over 450,000 sqm GFA combined, are expected to launch in the next 12 months, while four of these are launching in the remainder of 2023. Difficulties in the pre-leasing stages for these future projects, most of which are located in less central places, could drive up the citywide vacancy rate by end-2023.
  • Retailers’ rent affordability is anticipated to rise at a distinct pace in the future. Besides core regions, retailers may attempt to switch gears towards emerging submarkets from more mature ones to test the waters for potential business expansion. Hence, rent recovery could also differ across the submarkets.

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

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