Landlords of shopping centers and street shops in China’s major cities are now increasingly offering lower rents to avert higher retail space vacancies amid sluggish consumer spending. Retail spaces located outside central business districts will find it difficult to maintain tenants or lure new brands in the second half of this year because many companies prefer prime locations, where strong foot traffic can be guaranteed, according to property service firm JLL.
“Decentralized shopping malls do face pressure to retain tenants,” said Neo Huang, Manager of the retail agency leasing business of JLL East China. “Owners and managers are supposed to add some luster to their projects via meticulous design and deco, so that their malls can become attractive to brands.” The challenging situation for these retail spaces reflects the country’s uneven post-pandemic recovery, with faltering private confidence, record high youth unemployment and overhanging risk in the property market. The vacancy rate of prime retail space in Shanghai stood at 7.6% at the end of June versus 8% in December 2022, as China’s reopening from the Covid-19 pandemic in January fueled commercial activities, data from property agency CBRE showed. Shanghai’s retail spending in the first six months of 2023 grew 23.5% year-on-year to CNY937.8 billion. Still, that growth fell largely short of analysts’ expectations. The consensus forecast was a 30% increase from the same period in 2022, when a two-month city-wide lockdown caused by the coronavirus outbreak severely hurt Shanghai’s economy. The city’s gross domestic product contracted by 5.7% in the first half of 2022.
“There are bad signs that some retail brands are looking to cut their rental costs by reducing the number of outlets or cutting the size of shops,” said You Liangzhou, who owns property agency Baonuo in Shanghai. “The bearish outlook for the commercial real estate market will force some landlords to offer discounts on rents.” In the second half this year, Shanghai will see a fresh supply of about 500,000 square meters of prime retail space, nearly tenfold the new space of 53,000 sq m recorded from January to June, according to CBRE.
In Beijing, the vacancy rate stood at 8.1% in June. An additional 1 million sq m of retail space will be made available between July and December, more than triple the supply of 327,000 sq m in the first half. Guangzhou, capital of Guangdong province, will see 260,000 sq m of new retail space in the second half, compared to 60,000 sq m of new supply in the first six months. The city’s vacancy rate reached 9.7% in June. Shenzhen saw a vacancy rate of 4.8% in June. In the second half, new supply in the southern tech hub is estimated to reach 700,000 sq m, a 156% surge from 273,000 sq m in the January-to-June period. In June, retail sales growth in China fell 3.1% year-on-year, down from an 18.4% increase in April and 12.7% in May, the South China Morning Post reports.
