APPD Market Report Article


November 28, 2022

Daniel Yao, Head of Research, China


RMB 48.0


Retail sales recover at a gradual pace

  • Shanghai saw total retail sales recover over 3Q22 as subway passenger traffic and shopping mall foot traffic returned to normal. That said, the effects of 2Q22’s COVID-19 outbreak continued to be felt, with closures of cash-strapped stores contributing to negative net absorption of -256,000 sqm in the third quarter.
  • Despite the overall slow pace of leasing, certain sectors remained resilient and continued expanding, including luxury, skincare and perfume, new energy vehicle (NEV) brands, and community supermarkets. The F&B sector recovered quickly following a sharp contraction amid the outbreak, contributing to 45% of 3Q22’s newly leased space.

Slow leasing and new supply push up vacancy

  • Two prime malls delivered 60,000 sqm to the market, while two decentralised malls contributed 123,000 sqm of new retail space. JC Plaza launched on West Nanjing Road in the quarter; this mixed-use project is renovated from a hotel and features many brands’ debut stores. It is expected to extend the city’s luxury retail landscape.
  • Prime area vacancy rose 3.9 ppts to 13.6% as pandemic effects impacted consumption from tourists and office workers. Decentralised vacancy rose only 2.3 ppts to 12.3%, due to the resilience of key regional malls, which drew from a large consumer base consisting of nearby residents.

Citywide rents fall at a faster pace

  • Prime ground floor rents declined 3.7% q-o-q while decentralised rents fell 3.9%. Declining citywide rents reflected the challenges faced by both landlords and retailers. Landlords have grown more willing to negotiate rental concessions to retain current tenants, while retailers prefer shorter lease terms to stay flexible.
  • Huamao Group acquired a mixed-use parcel in the North Bund with a buildable office space of 77,000 sqm (GFA) and a retail space of 85,000 sqm. The sale reflected developers’ confidence in Shanghai’s retail fundamentals. The project’s high-end positioning should raise the retail profile of the North Bund area.

Outlook: Leasing momentum to recover at a modest pace

  • Leasing demand is expected to gradually recover through end-2022. Luxury brands, auto showrooms, household goods and furniture sellers, F&B brands, and community supermarkets will likely continue showing resilience.
  • With more spaces becoming available and rents growing more affordable, brands with deep pockets may seek opportunities to expand and raise their market share. As spaces are backfilled, vacancy in existing projects is anticipated to fall and rental declines should ease in 4Q22.

Note: Shanghai Retail refers to Shanghai's overall prime and decentralised retail markets.

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