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Savills Research

Retail Shenzhen – May 2021

The rental uptick continuesSome fast-fashion retailers retreated from the market while luxury brands expanded their presence in Shenzhen.

Savills plcSavills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 600 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.

“ Shenzhen’s fast-paced urban lifestyle and diversified culture allowed for overseas fast-food chains to develop rapidly. However, the situation in the fast-fashion sector was struggling due to a series of internal and external challenges.” CARLBY XIE, SAVILLS RESEARCH

Dorian ZhiSenior DirectorSouthern China+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

Ray Wu Managing DirectorShenzhen+86755 8436 7008ray.wu@savills.com.cn

CENTRAL MANAGEMENT

• Shenzhen’s retail sales rebounded 39.6% year-on-year (YoY) to RMB214.1 billion by the end of Q1/2021, with that in the F&B sector increasing 59.1% YoY.

• The OH Bay, a large-scale complex located in Bao’an, launched its retail component with a GFA of 65,000 sq m in Q1/2021, expanding the citywide stock by 1.2% quarter-on-quarter (QoQ) to approximately 5.3 million sq m.

• The citywide net take-up reached 47,885 sq m in Q1/2021, a

sharp contrast to the negative figure in Q1/2020, but down over 50% compared to Q4/2020.

• The citywide average vacancy rate edged up 0.2 of a

percentage point (ppt) QoQ to 9.8%, but its YoY increase was still as high as 5.3 ppts.

• The citywide average ground-floor rent edged up by 0.9%

QoQ but fell 0.3% YoY on a rental index basis to RMB655.2 per sq m per month by the end of the quarter.

• Two shopping centres are expected to be launched during Q2/2021, bringing about a combined retail GFA of 375,000 sq m to the market.

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SUPPLY The OH Bay, a large-scale complex located in Bao’an, launched its retail component with a GFA of 65,000 sq m in Q1/2021, with only the east section of which opening to the public while the west section postponing its open date. As the new supply of prime retail projects was relatively limited during the quarter, the total stock expanded marginally by 1.2% QoQ to approximately 5.3 million sq m as a result.

DEMANDThe performance of leasing demand was mixed by sector during Q1/2021. High-end fashion and accessories sectors were the biggest winners during the quarter in Shenzhen’s retail market, both of which saw many international luxury brands diving into the city and marking their first Shenzhen or Southern China stores. For instance, in Q1/2021, Audemars Piguet, Christian Louboutin, Goyard and Harry Winston announced their presence at Shenzhen Bay the MixC in Nanshan with their first Southern China stores, and so did Boucheron at the MixC in Luohu. Van Cleef & Arpels and Qeelin also expanded their retail footprint in Southern China by entering Shenzhen. Apart from these newcomers, Hermès decided to establish its second store at Shenzhen Bay the MixC, after Louis Vuitton and Dior did the same in 2020.

F&B continued to take its leading share in the overall market. Shenzhen’s fast-paced urban lifestyle and diversified culture allowed for overseas fast-food chains to develop rapidly. Shake Shack, an American fast-food chain, picked Shenzhen as its third city in mainland China, opening up a location at MixC World. Tam Chai Noodles, a well-known Hong Kong fast-food restaurant, tapped into mainland China through Shenzhen’s market with two new sites opening during Q1/2021. In addition, to embrace the new era of renewable energy, the market saw NEVs manufacturers, such as Xiaopeng and NIO, both opening stores during the quarter.

The situation in the fast-fashion sector was dire, however. After Mango, New Look and Forever 21’s withdrawal from the market in recent years, Bershka, Pull&Bear and Stradivarius, three affordable fast-fashion brands, closed all their brick-and-mortar stores in Shenzhen in Q1/2021, an estimated 12 stores in total. This was in response to the restructuring plans announced in 2020 by their parent company Inditex and these brands will only retain their e-commerce presence. Coincidentally, similar fashion retailers such as I.T., MJstyle and others, restructured their store distribution in Shenzhen as well. Not only were fast-fashion retailers facing uncertainties in their supply chain and revenue growth due

to the pandemic, but, most importantly, they were under mounting pressure from the boom of the e-commerce market, the rise of livestreaming, the competition from domestic brands and other adverse factors in China. Therefore, a few fast-fashion-anchored shopping centres sought alternative plans to counter the effects of these tenants’ current or potential retreats.

As a collective impact of the abovementioned, the citywide net take-up reached 47,885 sq m in Q1/2021, in sharp contrast to the negative figure in Q1/2020, but down over 50% QoQ. The citywide average vacancy rate edged up 0.2 of a ppt QoQ to 9.8%, but its YoY increase was still as high as 5.3 ppts, which was attributed to the lease terminations of some anchor tenants in 2020, while replacements have not yet been announced to the public.

RENTSMost landlords raised their rentals in Q1/2021, following on from their restored market confidence. The citywide average ground-floor rent edged up by 0.9% QoQ but still fell 0.3% YoY on a rental index basis to RMB655.2 per sq m per month by the end of the quarter. However, emerging areas (Bao’an, Longgang, Longhua), benefitting from small supply and a bigger residential population, saw YoY rental increases during the quarter.

MARKET OUTLOOKTwo shopping centres will be launched during Q2/2021, with a combined retail GFA of 375,000 sq m. The vacancy rate is expected to stabilise as many brands continue their expansion in Shenzhen.

F&B chains are expected to open more new locations as market conditions are favourable to their business expansions and profit growth. While the demand from the fast-fashion sector has softened, multi-brand fashion stores with higher price ranges, which are relatively more physical-experience conscious, are expected to increase their visibility with consumers. Luxury retailers are beating a path to Shenzhen and many are expected to be announced or at the final stage of decision-making, with the MixC projects being the preferred destination for many. Collectively, the increasing number of well-known brands emerging in Shenzhen’s retail property market heralds new opportunities for project brand mixes.

Source Savills Research

GRAPH 1: Citywide New Supply, 2016 to Q1/2021

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GRAPH 2: Vacancy Rate By Submarket, Q2/2016 to Q1/2021

Source Savills Research

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GRAPH 3: Rental Index By Submarket, Q2/2016 to Q1/2021

Source Savills Research

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Citywide Futian Luohu Nanshan Longgang Bao'an Longhua

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

Retail