APPD Market Report Article


November 28, 2022

Silvia Zeng, Head of Research, South China


RMB 311


Demand for retail spaces weakens under frail market sentiment

  • The retail sales of chain brands declined during 3Q22 due to COVID-19 flare-ups across the country, leading to a slower pace of expansion in Guangzhou. Thus, the overall leasing demand in Guangzhou’s retail market remained sluggish in the quarter.
  • Luxury brands have been steadily expanding their businesses in Guangzhou, where the high-end consumption market is far from being saturated. To cater to the different needs of top luxury brands, some shopping malls have undergone large-scale renovation and adjusted their tenant mix.

Tenant outflow in certain malls drives up overall vacancy rate

  • No new prime malls entered the market in the quarter. The urban vacancy rate edged up from 6.5% to 6.8%, owing to increased vacancy in malls under renovation and tenant mix improvements.
  • Divergent performances were observed across suburban buildings. Those which did not position themselves to match local purchasing power affected their tenants’ revenues, leading to tenant outflow. Others in relatively central areas performed better. Thus, the overall suburban vacancy rate remained stable.

Restricted consumer mobility hinders overall retail performance

  • Inter-district consumer mobility was largely reduced under ongoing COVID-19 prevention and control policies, which have decreased footfall and business in malls located in districts with relatively small resident populations. Subdued retail sales further weighed on the rents in malls in non-core and suburban areas.
  • As loan repayment deadlines approach in 2H22, developers mired in debt are putting more retail assets onto the market with discounted prices, as a result of a tighter cashflow. The decreasing bargaining power from the seller’s side has exerted pressure on the capital values of the overall market during 3Q22.

Outlook: Retailers remain cautious about expansion

  • The economic slowdown at both national and local levels is likely to weigh on Guangzhou’s retail market. Retail sales growth is projected to decelerate in the near term. Hence, retailers are expected to continue to adopt conservative strategies regarding offline expansion.
  • Approximately 450,000 sqm of new supply is expected to enter the market in the next 12 months, most of which will be located in suburban areas. Overall vacancy rate should be pushed up slightly. Rents in central areas will likely maintain stable growth upwards, while suburban rents still lack the growth momentum due to lower sales revenue speculations.

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

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