APPD Market Report Article

Shanghai

February 28, 2022

5.7%

RMB 51.0

Growth
Slowing

Leasing momentum remains stable

  • Retail leasing activity remained stable over 4Q21, driven by new energy vehicle (NEV) showrooms, luxury brands, sports apparel and equipment, experiential tenants, coffee and beverage chains, and more. Net absorption reached 654,700 sqm in 4Q and 1,481,700 for 2021 overall, rebounding from 2020’s negative net absorption.
  • While traditional experiential tenants like theatres and KTV remained cautious, we observed more active expansion from emerging categories like role-playing escape rooms, cultural and artistic experiences, animal interaction stores, and children’s indoor playgrounds.

Decentralised area sees large wave of new supply

  • CITIC Square reopened in the prime area in 4Q21 after renovation, delivering 34,500 sqm of retail GFA. With limited new supply and stable leasing demand, prime area vacancy decreased 0.7 ppts q-o-q to 9.0%. For the full-year 2021, two prime malls delivered a total retail GFA of 104,100 sqm.
  • Eight decentralised malls added retail GFA of 696,800 sqm in 4Q21. Decentralised vacancy rose 0.3 ppts q-o-q to 9.6%, amid a large wave of supply and a slight slowdown in leasing in existing projects. For the full-year 2021, 13 decentralised malls added a total retail GFA of 1,302,200 sqm.

Rental growth slows in both prime and decentralised markets

  • Prime ground floor rental growth decelerated to 0.3% q-o-q in 4Q21. Full-year rents were up 5.6% y-o-y thanks to strong sales performance and active expansion by luxury and high-end fashion brands in the prime area.
  • Decentralised rental growth slowed to 0.4% q-o-q in 4Q21, with rents ending the year up 2.2%. The slowdown was mainly due to large supply pressure and less active leasing in the decentralised area, although leading regional malls remained resilient.

Outlook: Leasing momentum likely to decelerate in 2022

  • Following a rapid rebound in 2021, we expect the retail recovery to slow in 2022 with pressure on China’s economic growth and uncertainty regarding the pandemic providing headwinds. We expect NEV showrooms, emerging experiential categories and F&B tenants to maintain expansion momentum in 2022, while other types of demand may moderate.
  • We expect four prime projects and nine decentralised malls to open in 2022. With stable demand and limited supply, prime vacancy is likely to remain low. While leading decentralised projects by recognized operators are likely to outperform, a large supply pipeline and slower leasing momentum will put pressure on the decentralized market overall.

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

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