APPD Market Report Article


November 28, 2022

Silvia Zeng, Head of Research, South China


RMB 844


Slowing leasing demand since mid-August

  • Leasing market sentiment has dropped to a lower level than expected. The lasting impact of COVID-19 in the first half of the year prompted major retailers to critically examine their expansion plans. Moreover, sporadic outbreaks in Shenzhen from mid-August to early-September has halted retail activities and raised retailers’ concerns over profit.
  • Consumer consumption on most goods, except luxury items, have witnessed an obvious downward trend. Most leasing demand in the quarter came from the consumer non-discretionary sector, such as F&B, moderately priced clothing, and groceries and services.

Overall vacancy rate slightly declines in 3Q22

  • There were three major retail complexes that opened to the public in 3Q22, adding 244,000 sqm to total retail stock. A number of related brands’ first, or flagship stores in south China, were introduced to consumers in Shenzhen.
  • The citywide vacancy rate dropped 0.2 ppts q-o-q. Since most suburban landlords were willing to relax their requirements on brand scale and tone, more vacant spaces in suburban malls were filled up by local brands and non-chain retailers. Thus, vacancy rate in the suburban market decreased from 2.2% to 1.6%.

Overall rents fall amid gloomy market sentiment

  • Rents were observed to decrease across the city, as most landlords were willing to trade a part of their bargaining power for better cashflow under quarters of sustained vacancy pressure. The overall rent edged down by 1.8% q-o-q on a chain-linked basis.
  • Although investors have shown consistent interest in prime assets, the market remained muted with no suitable assets for trade. Investors generally kept their confidence in the value of quality retail assets, so the magnitude of asset depreciation was much smaller than that of rental declines.

Outlook: Market stability is unlikely in the near term

  • As the stressors from the current economic environment are expected to linger, it is unlikely for residents’ consumption appetite to return in the short term. Thus, retailers are expected to stay cautious with regard to expansion.
  • New supply is expected to exceed 1,000,000 sqm in the next 12 months, mostly located in urban areas. Thus, vacancy rate, in the urban market especially, is likely to keep increasing. Overall rent is unlikely to pick up growth momentum in the short term with limited rental demand.

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

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