APPD Market Report Article


February 22, 2024

Silvia Zeng, Head of Research, South China


RMB 793


Leasing demand across sectors becomes more conservative

  • Competition between mass-market brands intensified as price-sensitive customers constituted a majority. Additionally, consumption was concentrated during the holidays, leading to fluctuations in retailer revenue and adding to operating pressures. Thus, leasing demand across sectors observed a contraction.  
  • On the other hand, local high-end consumption showed stronger resilience. Demand for spaces in Prime malls from international fashion and beauty brands continued, and some affordable luxury and trendy luxury retailers were expanding into Bao’an Central, a core precinct in the Suburban market.

Citywide vacancy declines with no new completions

  • No new projects entered the market in 4Q23.
  • Despite most projects in Shenzhen enjoying high occupancy rates, landlords were cutting rents to further reduce vacancy levels and secure better year-end performances. Additionally, some projects completed tenant adjustments in the quarter. The overall vacancy rate decreased by 0.5 ppts to 3.1%.

Demand contraction interrupts rent improvement

  • While rents for benchmark projects in the Urban market remained stable, other projects facing higher competition pressure saw greater room for rent negotiations. Some new openings even adopted relatively aggressive rental strategies to improve occupancy. As a result, Urban rents fell by 0.6% q-o-q on a chain-linked basis.
  • In the Suburban market, most retail projects are catered to nearby residents. Therefore, the new leasing demand was primarily driven by daily-use brands with moderate rent affordability, including some private labels. To maintain a low vacancy rate, landlords have had to reduce rents. The average Suburban rent declined by 1.3% q-o-q on a chain-linked basis.

Outlook: Gradual recovery to continue in the coming year

  • Despite the fact that some economic uncertainties may continue to drag on individual willingness to increase consumption, a recovery in international travel and more favourable policies towards consumer spending should provide support to retailer sentiment in 2024. A steady recovery in the overall leasing demand is expected.
  • Eight new projects are forecast to debut in 2024, adding a total new supply of over 730,000 sqm. The large amount of new supply may ramp up the overall vacancy rate to around 4% by year-end. The new supply is likely to come with considerable incentives to alleviate the pressure of destocking. Therefore, citywide rents are likely to remain under pressure.

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

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