APPD Market Report Article

Shenzhen

September 4, 2023

Silvia Zeng, Head of Research, South China

-3.8%

RMB 804

Rents
Rising

The retail market continues to build up recovery momentum

  • Recovery in Shenzhen’s retail market entered a new normal in 2Q23 as consumption continued a steady upward trend. However, some unevenness and structural differentiation in recovery persisted. To be precise, the F&B and service sectors saw a stronger recovery than other retail sectors.
  • The continued unleashing of consumer demand for dining incentivised F&B operators to take up nearly 40% of the number of leasing transactions recorded in 2Q23. Not only did some inexpensive chained restaurants actively expand, but several high-end restaurants also made their debut in Shenzhen.

Vacancy rate rises moderately due to new project launches

  • Three prime retail projects entered the market in 2Q23, adding nearly 190,000 sqm to the total supply. As sufficient and stable customer flow in shopping malls stayed at the top of the list when retailers were making leasing decisions, the new projects did not hit high pre-leasing ratios upon opening. The overall vacancy rate in the city increased by 0.2 ppts to approximately 3.4%. 
  • With the rental market steadily recovering, landlords gained more confidence in future leasing processes and became less willing to lower requirements during tenant selection. As a result, the vacancy rate of stock projects remained relatively unchanged from 1Q23.

Citywide rents maintain a steady growth rate

  • With the gradual restoration of offline consumption and the F&B sector taking the lead as leasing sentiment warmed up, overall rents in Shenzhen’s retail market witnessed a mild growth of around 0.4% q-o-q on a chain-linked basis.
  • Performances continued to diverge at the project level. While some projects stopped offering rent discounts, due to uneven recovery in overall leasing demand, those with less ideal locations and limited customer flow had to adopt more flexible pricing strategies to improve their occupancy rates.

Outlook: More balanced recovery across sectors is expected

  • By enhancing policy effectiveness and invigorating business entities, we believe that the confidence of consumers and retailers will be further increased. Hence, we predict that more sectors other than F&B will pick up steam in the coming months. 
  • In the second half of 2023, three new projects are expected to enter the market, totalling over 285,000 sqm. The overall vacancy rate may still face upward pressure, and is expected to rise above 4% by year’s end. We believe that rents will keep climbing slowly for the remainder of the year.

Note: Shenzhen Retail refers to Shenzhen's prime shopping mall market.

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