APPD Market Report Article

Beijing

November 28, 2022

Mi Yang, Head of Research, North China

-1.8%

RMB 766

Rents
Falling

Retail market suffers prolonged impact from recent outbreak

  • The recovery of the overall market was slow after the latest COVID-19 outbreak, and the retail market was not exempt, with retail sales declining by 7.9% in July but remaining stable in August at 0.3% growth. Leasing demand remained weak as many fashion brands paused expansion plans following sharp revenue drops. New openings from fashion brands accounted for only 11%, compared to 18% in 2021.
  • The recent outbreak has caused a new wave of store closures. In the quarter, F&B stores under 100 sqm accounted for nearly 60% of all F&B closures. Drinks and small snack retailers were significantly affected due to their heavy reliance on cashflow. Meanwhile, casual-dining chains with stronger profitability expanded in the quarter, pushing F&B openings up to 43%.

Lize Sky Mall opens among four new projects

  • Lize Sky Mall opened in late September in the Urban submarket, bringing more than 200 brands to the Lize area, where the retail market is underserved. Big Shopping Park in Ya’Ao, a service centre in Olympic Village during the Winter Olympics, was renovated and reopened. The building focuses on sports and entertainment, introducing the debut of multiple entertainment brands in Beijing.
  • Two buildings by well-known developers have opened near Yizhuang in the suburban Daxing District. Yizhuang Longfor Paradise Walk opened with more than 300 brands, targeting young customers in the vicinity. Meanwhile, Yinghai Uni Fun by China Overseas, which targets families in the region, introduced anchor tenants, Yonghui Superstores and Bona International Complex.

Rents drop further as the market remains under pressure

  • The impact from the recent outbreak put further pressure on rent growth. Landlords offered greater flexibility on rental terms, such as rent-free periods, to alleviate tenants’ financial pressure and stabilise their businesses. Following a sharp drop in leasing enquiries, landlords were also willing to offer further rental concessions to brands that were in negotiations, and also to new tenants.
  • As tenants gained more negotiating power, concessions offered by landlords drove market rents down further. Urban rents recorded a moderate decline, registering a -1.3% q-o-q growth (-1.8% y-o-y), while the Suburban market suffered a sharper decline, recording 1.8% q-o-q growth (3.9% y-o-y).

Outlook: Demand to stay weak; reopenings expected in Urban market

  • Considering that a growing number of brands have already paused or cancelled expansion plans, leasing demand is expected to remain weak for the rest of the year. Meanwhile, landlords are likely to adjust their rental expectations downward and maintain current rents, as stabilisation is the current priority.
  • Some projects that were previously set to open this year are expected to be postponed due to construction delays and pre-leasing challenges. As the city continues to promote urban renewal progress, multiple renovation projects in popular precincts and prime submarkets are expected to open in the near term, including Xiyue Shopping Mall at Wangfujing Street and The Box near East 2nd Ring Road.

Note: Beijing Retail refers to Beijing's Urban retail market.

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