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Savills Research

Retail Shenzhen – July 2021

Retail market continues to recoverStrong economic and demographic fundamentals encourage retailers to expand 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 It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent.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.

“ The ‘first-store’ concept remains popular in Shenzhen and continues to propel more leasing demand from a great deal of upscale retail brands with aspirations of capitalising business growth opportunities in the city and Greater Bay Area.” 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 GDP rebounded by 17.1% year-on-year (YoY) in Q1/2021 to RMB687.8billion.

• According to the seventh national census, Shenzhen’s population increased by 5.4% per annum over the last decade to 17.6 million by 2020. The population of residents between 15-59 years old took up 79.5% of the city’s total.

• Shenzhen’s retail sales grew by 28.6% YoY to RMB370.4

billion by the end of May 2021, with that in the F&B sector increasing 43.5% YoY.

• There were no new completions in the retail property

market, and the total stock remained at 5.3 million sq m. • The citywide net absorption reached approximately 26,000

sq m in Q2/2021, a sharp contrast to the negative figure in Q2/2020, but down 48.1% compared to Q1/2021.

• The citywide average vacancy rate edged down by 0.5 of a

percentage point (ppt) QoQ to 9.3%. • The citywide average ground-floor rent edged up by 0.2%

QoQ and 1.1% 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 launch during Q3/2021, bringing a combined retail GFA of 555,000 sq m to the market.

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SUPPLY As of the end of Q2/2021, there were no new completions in the prime retail property market, and the total stock remained at 5.3 million sq m. Meanwhile, influenced by a small COVID-19 outbreak in a few areas and the strict epidemic control and prevention measures enacted at the end of the quarter, some shopping centres postponed their debuts.

DEMANDIn contrast to the supply side, the leasing demand in the market was more eye-catching and spanned from several sectors, including the F&B, accessories, fashion, skincare, cosmetics and others. Shenzhen’s fast economic and demographic upgrades continued to support the growing consumption market, which, in turn, attracted many renowned retailers to expand in the market. This was reinforced by the “first-store” concept that encouraged an increasing number of luxury retail brands to open new stores in the locality, as was the case of Chanel’s first Shenzhen boutique at MixC Shenzhen Bay, and Harry Winston and Moynat both signing leasing commitments at the same project for their first south China stores. On top of these, Delvaux, Balmain and Tom Ford Fashion also followed suit.

Meanwhile, the younger demographic structure of Shenzhen, in conjunction with the evolving consumption taste and lifestyle upgrades, caused many retailers from the beverage sector to expand rapidly in the locality. This could be exemplified by some notable leasing transactions during Q2/2021. For example, Ah Ma Handmade expanded to five stores in Shenzhen compared to only one location in Q4/2020. M Stand, after opening its first store in Shenzhen in Q1/2021, aggressively opened four new locations in Q2/2021. At the same time, the skincare and cosmetics sector outperformed other peers during the quarter. Taking Injoy as an example, the project witnessed an influx of skincare and cosmetics brands settling during the quarter, including Kiehl’s, Lancôme, Givenchy and others.

With a growing number of leasing transactions concluded, the net absorption of the Shenzhen retail property market totalled approximately 26,000 sq m in Q2/2021. This was a significant YoY increment compared to Q2/2020, clearly owing to COVID-19 last year. Despite that and the overall active leasing market during the quarter, the total net absorption of the market aggregated to approximately 73,000 sq m by the end of 1H/2021. Compared to that in 1H/2019, the market still needs some time to fully recover from the ripple effect of COVID-19. The improved leasing market performance resulted in a small decrease of 0.5 of a ppt QoQ in the citywide average vacancy rate to 9.3%.

RENTSThe market recovery was also reflected in asset performances in the Shenzhen retail property sector. By the end of Q2/2021, the citywide average rent inched up 0.2% QoQ and 1.1% YoY, respectively, on a rental index basis, to RMB655 per sq m per month. Rents of most of the retail catchments in Shenzhen were stable relative to Q1/2021, except for Futian, where the rental index edged down by 0.4% QoQ due to renovation projects slightly decreasing their rental.

MARKET OUTLOOKThe outlook for Shenzhen’s prime retail property market should remain positive in both the immediate and long terms, supported by the continued growing momentum of the economics and demographics in the city. This is expected to propel strong leasing demand from many retailers trying to capitalise on the growth opportunity within the core city of the GBA. Looking into Q3/2021, two new shopping centres with a total retail GFA of approximately 555,000 sq m are scheduled for debut. Considering the relatively sophisticated operation experience and reputation of the landlords and their retail properties, the impact of the new completions on the citywide average vacancy rate is minimal.

Source Savills Research

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

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sq m

GRAPH 2: Vacancy Rate By Submarket, Q3/2016 to Q2/2021

Source Savills Research

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2016 2017 2018 2019 2020 2021

Citywide Futian Luohu Nanshan Bao'an Longgang Longhua

GRAPH 3: Rental Index By Submarket, Q3/2016 to Q2/2021

Source Savills Research

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2016 2017 2018 2019 2020 2021

Q1/

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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

Source Savills Research

BRAND SECTOR PROJECT SUBMARKET CONDITION

Chanel Fashion MixC Shenzhen Bay Nanshan Under

Construction

Harry Winston Accessories MixC Shenzhen Bay Nanshan Under

Construction

Moynat Accessories MixC Shenzhen Bay Nanshan Under

Construction

GivenchySkincare,

Cosmetics and Perfume

Injoy Futian Operating

M stand F&B PAFC Mall Futian Operating

Lululemon Sports & Outdoors MixC World Nanshan Under

Construction

TABLE 1: Selected New Stores, Q2/2021

Retail