Market recovery remains sluggish as consumption growth declines

• In the quarter, the local retail market was affected by the COVID-19 outbreak in November as demand weakened. For example, F&B and fashion sectors continued to report shrinking profits, further delays on expansion plans, or even surrendering of leased spaces. Those two sectors accounted for more than 50% of the total space surrendered in Urban shopping malls in 4Q22. 
• However, several sectors continued to expand under downward pressure in the quarter as sportswear and new-energy vehicle (NEV) retailers were actively seeking leasing opportunities. At the end of 2022, the loosening of COVID-19 restrictions is expected to boost market activities over the short to mid term.

Several projects postpone openings

• No new supply came online in the quarter; several malls were previously set to enter the market in 4Q22 but failed to open on schedule due to delays related to the pandemic. Many future projects also reported a postponement, due to delayed construction schedules and pre-leasing progress.
• As a number of tenants surrendered space to landlords, the overall market vacancy rate climbed, with the Urban vacancy rate further rising by 0.8 ppts to 7.9%, and the Suburban vacancy rate further increasing by 1.0 ppts to 10.1%. 

Rental decline continues in a downward market trend

• As leasing demand further weakened, overall market rents continued to decline. An increasing number of landlords were willing to offer lower rents and more flexible terms to attract retailers and to stabilise their businesses. 
• Urban rents recorded the largest quarterly decline in 2022, registering at -2.6% q-o-q (-4.4% y-o-y), while Suburban rents dropped by 2.9% q-o-q (-6.2% y-o-y). 

Outlook: Market recovery expected in 2023, as COVID-19 policies shift

• Despite the short-term disruption of an exit wave of cases, several positive signals have been seen in the city in the last week of December, such as the increase of customer footfall in restaurants. This is likely to boost market confidence and elevate expectations in 1H23. Rents are forecast to rebound in 2H23.
• More than 600 new brands and shops have made their debut appearance in Beijing in 2022, offering new destinations for consumption with upgraded services. Driven by the robust “first-store economy,” shopping centres are expected to see a rise in their retail sales and a further release of market consumption potential.