APPD Market Report Article


February 28, 2023

Silvia Zeng, Head of Research, South China


RMB 813


Retailers remain pessimistic about sales

  • Offline consumption and commercial activities remained disrupted by COVID-19 in 4Q22. The widespread outbreak deepened retailers’ negative expectations on sales revenue, in particular discouraging them from expansion. The leasing atmosphere on the whole has been fairly sluggish. 
  • As the local economy has yet to fully recover, the overall willingness to consume has not yet returned to normal. The curtailment of spending was especially harmful to mass-market brands with higher unit prices. As a result, a number of such retailers have taken the initiative to contract their offline businesses in Shenzhen in 4Q22.

The city sees a mild increase in the overall vacancy rate

  • In the quarter, many existing shopping malls have found growing difficulty in filling up places which had been vacant for several quarters. However, with the introduction of tenants in the experiential and household sectors occupying large areas, the vacancy rate of stock projects remained similar to that in 3Q22.
  • Four new buildings entered the market in 4Q22. Weak leasing demand has put the newly completed malls in a challenging situation. As a result, opening rates were relatively unsatisfactory, and overall vacancy rate was driven up by 0.2 ppts compared to that in 3Q22.

Rents plummet in 4Q22

  • Due to increasing sales pressure on retailers, rent affordability has vastly declined. In the face of weak leasing demand, shopping malls have had to offer rental concessions to keep vacancy rates under control at year’s end. Citywide rents fell by 2.8% on a chain-linked basis q-o-q, which was the largest quarterly drop in recent years.
  • There was minimal change in investors’ expectations on returns in retail projects despite the poor performance of rental income in general. As a result, yields remained unchanged from the previous quarter.

Outlook: Leasing demand recovery subject to economy improvement

  • With the adjustment of COVID-19 control measures and the border reopening, the increased ability to travel and go on outings should effectively bring up consumer traffic in shopping centres. However, retailers resuming offline business expansion plans will likely still need to wait for a recovery in consumption and a rebound in sales revenue.
  • New supply should hit a record high of around 920,000 sqm in 2023, with nearly half of the new supply to be located in under-developed suburban business districts, pushing up the city’s vacancy rate. A bottoming out of rents is expected to come by the end of 2023.

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

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