Commercial property owners in Shanghai are beset by high vacancy rates and demands for rent reductions as China’s zero-Covid policies continue to suppress the retail and restaurant trades, dashing hopes of recovery after the city’s two-month lockdown earlier in the year. Vacancy rates at premium shopping malls, wholesale clothing centers, wet markets and street shops are set to increase in the face of weaker consumer sentiment, analysts said. “No business recovery can be expected in the near future as more tenants plan to close down their shops,” said Zhou Lingzi, Senior Manager with a state-owned commercial property operator. “Even rent cuts can do little to boost occupancy rates.”
The situation is the continuation of a nightmare for commercial landlords, who hoped the June 1 end of the lockdown in Shanghai would spark a robust comeback, only to see the central government's dogged pursuit of the zero-Covid policy continue to wreak havoc on local restaurants, garment makers, food stores and groceries. In August, a survey by Shanghai-based property agency E-house R&D Institute found that the average vacancy rate in 20 grade A office buildings and shopping malls was 9%, well above the “warning line” of 5%. Super Brand Mall in Lujiazui was the worst hit, with a vacancy rate of 34%.
Shanghai’s economy contracted by an unprecedented 5.7% in the first six months of this year. Its full-year economic output may end up unchanged from 2021, thanks to increasing infrastructure construction during the second half, according to two government officials. Restaurants, coffee shops and entertainment venues like cinemas are the main victims of virus-control measures. Most of these businesses have seen sales decline compared with a year ago, since their operating capacity is capped at 75%. “Landlords are under pressure to either lower rents or give tenants rent waivers this year,” said Song Yulin, Senior Manager with property agency 5I5J in the Pudong New Area. “A rising number of restaurant and small shop owners are threatening to close down their businesses, so more retail spaces may become vacant.”
At the end of March, the Shanghai government required state-owned commercial landlords to exempt their tenants from rent payments or up to six months, but private landlords do not have to offer their tenants relief packages. Tenants threatened to close up shop or move if rents were not reduced. From January through August, retail sales in Shanghai fell 12% from a year earlier and restaurants and hotels saw revenue sink 27.5%, the South China Morning Post reports.
