APPD Market Report Article

Shenzhen

December 1, 2021

2.3%

RMB 949.4

Rents
Rising

Retailers’ expansion plans drive overall leasing demand

  • Despite a slowdown in the growth of total retail sales, many retailers, especially those who recently received funds from venture capital, showed a strong interest in growing their footprint in Shenzhen given the city’s demographics. Clearly, the spike in leasing activities fuelled the retail market, resulting in active overall leasing demand in the quarter.
  • Sector-wise, the F&B sector welcomed several new players in the quarter. For example, Peet’s coffee launched its first south China store in MixC World. In addition, new leasing of trendy offerings also experienced an uptick. It included not only domestic fashion brands, but well-established select shops from Japan that have been embarking on an overseas expansion.

One mega mall in the suburban area makes its debut in 3Q21

  • With a total GFA of 305,000 sqm, Shenzhen Longgang Wanda Plaza entered the market in the quarter. This mall achieved full occupancy upon the completion date and differentiates itself by featuring a wide range of indoor activities, such as rock climbing and horse riding.
  • Supported by the upward momentum in the leasing market, shopping malls managed to fill vacant space to various extents. In addition, some, such as Link Central Walk and MixC World, have made considerable progress on their tenant upgrades. Therefore, these factors combined helped to drive the overall vacancy rate down by 0.4 ppts q-o-q to 2.6%.

The upward growth trend in overall rent continues

  • Amid positive market sentiment, most malls were under less pressure to attract retailers, thereby holding rentals firm in general, while some high-profile malls and those with declining vacancy rates supported rental growth. As a result, overall rent went up further in the quarter, with an increase of 0.9% q-o-q on a chain-linked basis.
  • In order to prepare for the potential launch of commercial REITs, some cash-rich domestic developers were keen on acquiring retail properties. Yet, given no suitable assets in Shenzhen, they either adopted an asset-light strategy or shifted their focus to projects in other GBA cities, such as Dongguan and Foshan, with upside potential.

Outlook: Emerging domestic brands to contribute to leasing demand

  • Overall leasing demand will benefit from two factors in the short term. First, the young generation embraces domestic brands, allowing them a larger footprint nationwide. Secondly, as the suburban area reaches maturity, consumption needs will rise, which will entice retailers looking to seize on this opportunity.
  • Future supply is likely to exceed 1.0 million sqm in the next 12 months, more than half of which will be distributed in suburban areas, such as Longhua and Guangming districts. However, overall vacancy rate will not suffer from an abrupt surge as some have already achieved excellent pre-leasing rates. Overall rent is expected to increase moderately on the back of an uptick in leasing demand.

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

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