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Savills Research

Retail Shenzhen – August 2020

Shenzhen’s retail market continues to evolveThe F&B, fashion and accessories sectors saw significant rebounds in leasing activities along with a pick-up in footfall.

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“ Market fluctuations arose on the back of COVID-19 as many retailers forwent lease renewals and some financially-stressed peers had to terminate their leases early. This resulted in a notable increase in the citywide retail vacancy rate.” CARLBY XIE, SAVILLS RESEARCH

Dorian ZhiSenior DirectorShenzhen+86755 8436 7036doriandl.zhi@savills.com.cn

RETAIL

James MacdonaldSenior DirectorChina+8621 6391 6688james.macdonald@savills.com.cn

Carlby XieDirectorSouthern China+8620 3665 4874carlby.xie@savills.com.cn

RESEARCH

Please contact us for further information

Savills team

Woody LamManaging DirectorSouthern China+8620 3665 4777woody.lam@savills.com.cn

CENTRAL MANAGEMENT

• Despite the local GDP moving back into positive growth with a 0.1% year-on-year (YoY) increase, retail sales plummeted by 14.8% YoY to RMB364.0 billion by the end of 1H/2020. However, retail sales’ month-on-month (MoM) contraction slowed down.

• Two new shopping centres comprising of 138,000 sq m entered the market in Q2/2020, with one of which being converted from a department store.

• The total stock of the Shenzhen retail property market expanded by 2.9% quarter-on-quarter (QoQ) to approximately 5.0 million sq m as a result.

• Leasing demand remained fragile. The citywide net take-up continued to be negative, registering at -10,634 sq m at the end of Q2/2020, while the citywide average vacancy rate increased by 2.9 percentage points (ppts) QoQ to 7.3%.

• The citywide average ground-floor rent fell by 1.1% QoQ on a rental index basis to RMB679.5 per sq m per month.

• Retail investment market activities picked up with two major sales transactions being concluded during Q2/2020.

• Triggered by the COVID-19 pandemic and the changing consumer behaviour, Shenzhen’s overall retail property market is steadily evolving.

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SUPPLY The COCO Park Phase II in Futian District had its soft opening and Hongshan 6979 in Longhua District made its grand debut in Q2/2020, bringing a total of 138,000 sq m of quality retail space to the market and increasing the total stock by 2.9% QoQ to 5.0 million sq m. The COCO Park Phase II, previously a department store, was converted into a shopping centre after renovation and tenant-mix restructuring, and serves as an addition to the entire COCO Park.

DEMANDWith the return of a massive migrant population and the resumption of consumers’ outdoor activities during Q2/2020, retailer sentiment was rejuvenated. This was most obvious in the F&B sector where many restaurants’ footfall and turn-over picked up notably. Some well-known F&B retailers such as Walaida (蛙来哒), Panggelia (胖哥俩), Chinese Sauerkraut Fish (太二酸菜鱼) and Fujiantaoshan (伏见桃山) chose to open additional stores in Shenzhen during Q2/2020.

Driven by the online livestream and influencer marketing, retailers in the skincare, cosmetics and perfume sectors with strong confidence in the market continued to expand in Shenzhen, evidenced by several brands’ store-opening activities. For example, Gucci Beauty, Byredo and Diptyque opened their first southern China boutiques/stores at the Mixc World, and Wow Colour and The Colorist—two new domestic cosmetic retailers—demonstrated aggressive expansion plans and activities in Q2/2020.

Overall, market activities rebounded notably, and this was prevalent in the F&B, fashion and accessories sectors, especially compared with Q1/2020, as both of landlords and tenants proactively practised sound strategic adjustments. This included cases that many retailers forwent lease renewals and some financially-stressed peers had to terminate their leases early. As a result, the citywide net take-up continued to be negative, registering at -10,634 sq m, while the citywide average vacancy rate increased by 2.9 ppts QoQ to 7.3%.

RENTS Established shopping centres with stable clientele and strong footfall managed to

keep their rents unchanged in Q2/2020 while others mostly had to lower rents to cushion the impact of the epidemic. The citywide average ground-floor rent, therefore, declined by 1.1% QoQ on a rental index basis, to RMB679.5 per sq m per month by the end of Q2/2020.

INVESTMENTRetail investment market activities picked up with two major sales transactions being concluded during Q2/2020, both of which being retail podiums. With growing external and internal uncertainties, investors became more prudent, demanding higher risk premiums when scrutinising investment opportunities. Considering the scarcity of saleable quality retail properties in Shenzhen, and the twin impacts of larger lump-sum prices and pressure on tenant-mix adjustments under the pandemic, investors appeared to show a stronger interest in community retail properties. This type of property proved popular because of longer residual land tenure, smaller lump-sum prices and more stable and resilient performance.

MARKET OUTLOOKOne shopping centre, with a total retail GFA of 60,000 sq m, is expected to debut during Q3/2020. The new supply, combined with the lingering impact of the pandemic, is forecast to increase the citywide average vacancy rate and cause a moderate rental decline. Triggered by the COVID-19 pandemic and changing consumer behaviour, Shenzhen’s overall retail property market is evolving in both landscape and brand-mix. Many shopping centres are taking the initiative to renovate their properties (including upgrading and re-configuration) and trade-and brand-mixes in a bid to strengthen their market competitiveness and embrace the post-epidemic consumption rebound. Moreover, Shenzhen’s retail market has become appealing to mid-to high-end brands given the persistent limitation on cross-border travels and the growing demand from local consumers. The commitment and implementation of these brands’ expansion plans in the locality are expected to help propel the retail property market’s evolution in the near future.

Source Savills Research

GRAPH 1: Citywide New Supply, 2015 to 1H/2020

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GRAPH 2: Vacancy Rate By Submarket, Q3/2015 to Q2/2020

Source Savills Research

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Citywide Futian Luohu Nanshan Bao'an Longgang Longhua

GRAPH 3: Rental Index By Submarket, Q3/2015 to Q2/2020

Source Savills Research

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Note Calculation of rental indices for all submarkets starts from Q1/2004 except for: Luohu – Q4/2004; Nanshan – Q2/2006; Longgang – Q3/2012; Bao’an – Q3/2013; 5. Longhua – Q3/2014

Source Savills Research

PROJECT NAME SUBMARKET RETAIL GFA (SQ M) DEVELOPER

Gateway One Shopping Centre Phase Two Nanshan 60,000 China Merchants Shekou

TABLE 1: Future Supply, Q3/2020

Retail