A huge wave of retail store closures has hit the Beijing retail market since the start of 2020. The trend suggests that there is no easy path to recovery ahead, as retailers and landlords brace the fallout from COVID-19 in the nation’s capital.
As stores continue to shut citywide, landlords of shopping malls are struggling to fill vacancies. As of end-June, the overall vacancy rate for prime malls in the urban areas climbed to 8.6%. At the same time, net absorption registered -145,000 sqm at end-2Q20, the largest negative quarterly figure (excluding project withdrawals) since JLL started tracking the Beijing prime retail market back in 2000.
Figure 1: Beijing Urban Prime Retail Market – Store Closures and Commitments Index
Source: JLL Research, 2Q20
Note: Index Base = 100 as per the Closed Store Average (by area).
Based on survey of 40+ prime malls in urban Beijing.
F&B sector sees high number of businesses packing up
Weakness in the F&B sector dealt a direct and significant blow to the market, with the trade category accounting for over a third of store closures. The closures were recorded at some 40 key prime malls in urban areas by end-2Q20. Restaurants comprised an overwhelming majority of these closures, accounting for roughly three-quarters of all F&B closures. This placed huge vacancy pressures on F&B-designated areas in malls. Landlords found it most difficult to replace fine-dining tenants and large restaurants.
Retailers are expediting closures of underperforming stores to mitigate cash-flow issues and make it through these challenging times. This is adding pressure to a market that was already showing signs of struggle prior to COVID-19. In late 2019, the slowing economy had already started taking a toll on the market, with several projects feeling the strain from rising vacancy rates as leasing demand softened. The pandemic has seen expansion strategies further limiting, with more retailers forced to apply brakes to their plans. Their cautious move disrupted the reshuffling arrangements of landlords, thereby leaving more difficult-to-fill empty spaces.
Fashion, children, entertainment categories also struggle
The fashion sector is also feeling the hard times. Making up 18% of the recorded store closures, fashion tenants comprise the second-largest impacted trade category after F&B. Fast fashion accounted for 22% of closures. Not just in Beijing, but all over China and other parts of the world, fast fashion has had a hard time weathering the storm from the virus. These retailers have responded by accelerating the pace at which they had already started to shrink their physical presence in recent years. The trend predicts that the number of fast fashion store closures in Beijing will continue to rise through year-end.
Meanwhile, other more notable trade categories impacted by the latest situation include the children’s sector (totalling 8% of closures) and the entertainment sector (at about 9% of closures). Moreover, the closing of stores offering products and services for children is expected to rise by year-end as many tenants have yet to withdraw from projects formally, and parents continue to keep children away from offline activities. A recovery in entertainment is also expected to take time, as sales will be largely tied to a strong rebound when a majority of customers feel comfortable to go out freely again.
Still, even as the pandemic pushes back retailers and landlords, it is also forcing them to carefully re-consider strategies. Rising vacancy in the market is presenting more affordable leasing opportunities to some retailers, namely those who are still determined to work on their growth strategies at this time. Landlords ready to grab these opportunities are expected to fare better by proactively leaning into the deepening trend of overall rental adjustments. Although tough, this may ultimately put them in a better position to survive the current market.
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