APPD Market Report Article

Guangzhou

February 28, 2022

0.3%

RMB 310

Rents
Stable

Luxury retailers eye further expansion in Zhujiang New Town

  • Overall leasing demand was modest as most retailers remained cautious about offline expansion. Yet, as consumption upgrade continued to steer the recovery of retail market, luxury brands were active in growing their footprint. Gucci opened its pop-up store at K11, while several cosmetics brands, such as Tom Ford and La Mer, also expanded there.
  • Well-managed malls in Tianhe North remained as top choices for international F&A and F&B retailers to open their first stores in Guangzhou. For example, the multi-brand boutique Studious Tokyo and trendy fast-food chain Shake Shack both set up their first stores at Parc Central.

Vacancy pressure mounts in suburban malls

  • There were no new completions in 4Q21.
  • Urban vacancy edged down slightly as certain well-managed malls in Tianhe North were able to fill up some space, although the vacancy rates of a few malls in Zhujiang New Town continued to rise amid their adjustments of tenant mix. Suburban vacancy rate went up as more retailers exit malls in Zengcheng where footfall remained sluggish.

Investor sentiment hovers lower amid uncertainties

  • Rents of a few mid-to-high-end malls in Tianhe North and Zhujiang New Town continued to grow robustly. However, the relatively weak leasing demand still put downward pressure on rents of the rest of the malls, with some in suburbs even recording a visible drop in rents due to rising vacancy rates.
  • Although certain SOEs with relatively healthier cash flows were interested in expansion in Guangzhou retail market by acquiring core assets in core areas, most of the saleable projects mainly owned by indebted developers are in Suburban areas. Thus, they might turn to adopt light-asset strategies.

Outlook: Rental growth will still face headwinds in the near term

  • Although macroeconomic factors will cloud household income growth prospects and overall leasing demand will likely remain stable, the initiative to develop the city into an international consumption centre will support retail market growth in the long run. Malls in core areas should remain popular among upscale retailers and suburban malls will have large potential to upgrade and differentiate.
  • Around 196,000 sqm of new supply is expected to enter the market in 2022. Despite the limited supply in the near term, both Urban and Suburban vacancy rates will likely drop slightly due to tepid demand. Most retailers will likely stay cautious about further expansion and bargain for lower rents, impeding future rental growth.

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

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