Retailer performance suffers, leading to weaker leasing demand

• In H2 2024, retailers faced revenue pressures and paused expansion plans, reducing overall demand. With a decline in new leasing demand, landlords turned to lower-tier market tenants as supplements, resulting in a downgrade of brand positioning.
• F&B tenant volatility increased with frequent withdrawals. Meanwhile, emotional consumption categories, such as ACG-related toys and pet products, saw growth, representing 24% of the city’s newly opened area.

Supply pressure rises in response to accumulated vacancies

• In Q4 2024, five new projects entered the market with a total area of 628,100 sqm. For 2024, the total new supply reached a record 1.62 million sqm, intensifying market competition. With supply outpacing demand, absorption of vacant spaces is taking longer.
• The vacancy rate in urban areas rose by 0.4 ppts to 5.2%, while suburban vacancy rates increased by 1.3 ppts to 9.0%, the highest level in seven quarters.

Rents shift into a downward cycle as demand recovery stalls

• Retailer revenue contraction led to reduced affordability in rents, with many tenants requesting rent reductions and other lease concessions. In response to weak new leasing demand, landlords have made selective rent concessions to secure renewals.
• In Q4 2024, urban rents fell by 0.9% q-o-q, while suburban rents declined by 1.4%. These downward trends have prevented some landlords from achieving their 2024 revenue targets.

Outlook: The continued downturn in demand to lead to an acceleration in rent decline

• Retailer performance pressures are expected to persist in 2025, further suppressing leasing demand. Meanwhile, tenants are anticipated to become increasingly rent-sensitive, driving further rent reductions. Urban rents are forecast to decline by 2.5% y-o-y.
• Additionally, Beijing’s retail market is expected to add 1.57 million sqm of new supply in 2025. The opening occupancy rate in new projects is likely to decline further since absorption will face heightened pressure.