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Savills Research

RetailShanghai – October 2020

Fashion and entertainment retailers record a strong recovery.

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Nicky ZhuSenior DirectorShanghai+8621 6391 6688nicky.zhu@savills.com.cn

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

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“ Resilient consumer confidence along with the government push for domestic consumption to be more central to the economy going forwards has supported the recovery in sales and unlocked consumer expenditure.” JAMES MACDONALD, SAVILLS RESEARCH

• Retail sales totalled RMB966 bn in the first eight months of 2020, down 6.4% YoY despite a return to growth in May, and sales in August up 11.5% YoY.

• No new projects were launched onto the market in Q3/2020 or indeed for the whole of 2020.

• Citywide vacancy rates fell by 0.2 of a percentage point (ppt) QoQ to 11.5%.

• First-floor rents fell 0.2% in Q3/2020 at an average of RMB26.5 per sq m per day as overall retail market continues to suffer the fallout of COVID-19.

• Fashion retailers were more positive in the third quarter with many young brands helping to drive footfall and consumption to malls.

• The leisure and entertainment sectors quickly returned to growth with operators looking to secure new locations, including indoor skiing, pet experience stores, sports and fitness centres and escape room brands.

• Overseas travel is likely to remain challenging in the coming months, thereby driving demand to domestic tourist sites and supporting domestic consumption.

Aileen ZhongSenior DirectorShanghai+8621 6391 6688aileen.zhong@savills.com.cn

Joey ChioSenior DirectorShanghai+8621 6391 6688joey.chio@savills.com.cn

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Prime retail areas lead the rebound Elaine ChanSenior DirectorShanghai+8621 6391 6688elaine.chan@savills.com.cn

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SUPPLY AND DEMANDOffline retail sales totalled RMB66 billion during the eight-day holiday, up 12.2% YoY, according to the Shanghai Municipal Commission of Commerce. Despite monthly YoY growth turning positive in May and growing 11.5% in August, the accumulated sales for the first eight months remains down 6.4% YoY. With project delays pushing back completion dates, 2020 is expected to see no new supply added to the market.

F&B, fashion and leisure and entertainment sectors expanded the most aggressively this quarter, accounting for two-thirds of the newly leased space in Q3/2020.

Mainstream clothing brands set up stores amid signs of renewed market confidence. Zara took over a large first-and second-floor location in Jing’an Joy City, and Uniqlo opened in Bailian Shiji Shopping Mall, while Canada Goose entered iAPM and Niko and... moved into In Point on Nanjing Rd (W).

Younger, edgier brands continue to drive footfall to malls and are able to secure space in leading malls. Domestic designer brands’ online platform ICY opened an offline store in Raffles City and iAPM; Jackson Wang’s personal brand Team Wang opened a two-month pop up in Jing’an Kerry Centre; Solestage opened their first Chinese flagship store on Huaihai Rd (M), while Korean brand Acme De La Vie (ADLV)’s first store in Shanghai is expected to open in iAPM.

The leisure and entertainment sector also rapidly return to normal with cinemas taking in RMB205.1 million from Oct 1-7. Additionally, indoor skiing, pet experience stores, sports and fitness centres and escape room brands once again started looking for new locations in Q3/2020. Super Brand Mall leased out a large area of its high zone to Miniature World, Ringside Boxing and Tencent’s esports V-Station. Snow 51, an indoor ski brand, opened themed stores in Kerry Parkside and Grand Gateway 66 in partnership with Burton, Amer Sports and

Rossignol. Pet experience stores were the latest addition to the retail mix of a number of malls, with Daydream’s miniature pig experience store (白日梦撸猪社) opening locations in Metro City, Super Brand Mall and Sky Mall.

RENTS AND VACANCY RATESOverall shopping mall vacancy rates fell by 0.2 of a ppt in Q3/2020 to 11.5% as a number of centres were able to replenish their roster of retailers. Prime retail area vacancy rates fell 0.9 of a ppt QoQ with Nanjing Rd (E) and Huaihai Rd (M) falling 2.8 ppts and 1.4 ppts, respectively. Non-prime area vacancy rates remained unchanged, though individual projects continued to see increases while others were able to attract new tenants to take up vacated spaces.

First-floor rents fell 0.2% in Q3/2020 to an average of RMB26.5 per sq m per day. The overall retail market remains in a period of adjustment after the pandemic, with landlords continuing to be accommodative to tenants if they are able to enhance the overall appeal of the retail centre.

MARKET OUTLOOKWith several downtown projects postponed to next year, only several suburban malls will open their doors in 2020 such as the nine-storey, 206,000 sq m Nanxiang InCity Mega which opened in August. As a result of the postponement of a number of projects, Shanghai is expected to reach a supply peak in 2021 with approximately 1.5 million sq m due to be added to the market.

A lack of outbound travel and a push to develop domestic consumption to support economic growth is expected to drive the retail market in China and particularly Shanghai to new heights. The more nuanced understanding of local consumer tastes, ability to swiftly respond to changes and willingness to take risks should place domestic retailers in a good position to capitalise upon this growth in demand.

Source Savills Research

GRAPH 1: Shanghai Monthly Retail Sales Growth YoY, Aug 2017 to Aug 2020

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GRAPH 2: Citywide Vacancy Rates, Q4/2015 to Q3/2020

Source Savills Research

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GRAPH 3: Citywide Rental Indices, Q4/2015 to Q3/2020

Source Savills Research

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Retail

Source Savills Research

TENANT CATEGORY PROJECT AREA GLA (SQ M)

Zara Fashion Jing’an Joy City Suzhou Creek 2,200

Sephora Accessories Xintiandi Plaza Huaihai Rd (M) 600

Tai’er (太二) F&B Hongyi Plaza Nanjing Rd (E) 210

Snow 51Leisure &

EntertainmentKerry Parkside Huamu 200

Delvaux Accessories Grand Gateway 66 Xujiahui 120

TABLE 1: Selected Leasing Transactions In Q3/2020