Owners of commercial properties in Shanghai are under pressure to cut rents to support restaurants and retailers facing the daunting task of sustaining their businesses amid lacklustre consumer demand.
Shopping centres and retail outlets
based in the city’s non-central business district (CBD) areas are likely to see a rise in vacancy rates due to the closure of unprofitable businesses, according to developers and property brokers.
A senior executive with a major state-owned commercial property developer in Shanghai told the Post that nearly all tenants were asking for reductions in rents when they negotiated with landlords on the renewal of their lease agreements. Some of the business owners had even threatened to shut shop if rents could not be negotiated down, he added, speaking on condition of anonymity.
“I have requested the landlord to slash the rent by 20 per cent to help me survive the economic slowdown,” said Zhang Yixiang, owner of a restaurant based in Tangqiao, in Shanghai’s Pudong New Area. “I would have to close down my noodle shop if the rental costs were to stay unchanged.”
He added that based on the current rent of 30,000 yuan (US$4,178) a month, the noodle shop would not be able to break even amid dwindling sales.
A study by property services firm JLL shows that the vacancy rate in Shanghai’s non-CBD areas increased by 0.6 percentage points quarter on quarter to 12.2 per cent at the end of December.
Moreover, newly built shopping centres are scrambling to attract clients by offering discounts on rent, JLL said in a report last month. Average rental costs in non-CBD areas last year fell 4.2 per cent year on year to 16.8 yuan per square metre per day.
A total of 10 new shopping centres will start operations in Shanghai’s non-CBD areas this year, adding pressure to an already weak market, according to JLL.
Shanghai’s economic output expanded by 5 per cent to 4.72 trillion yuan last year as the global economy turned out to be weaker than expected, Mayor Gong Zheng told an annual session of the Shanghai People’s Congress on January 23. The pace of growth fell short of the 5.5 per cent goal the local government set at the beginning of 2023.
Retail sales in the country’s economic engine climbed 12.6 per cent to 1.85 trillion yuan.
“Since young consumers are increasingly placing orders for goods via smartphones, physical store operators need to adjust their business models to adapt to the changing market conditions,” said Ivy Lu, head of research at CBRE East China.
“Fortunately, the local government is organising various shopping festivals to stimulate consumer spending.”
CBRE said outdoor sports, hanfu, traditional Chinese clothing and trading of second-hand jewellery are currently well-received by local consumers, which could boost the occupancy ratio in the city’s shopping centres.
Meanwhile, in Shanghai’s grade-A office market
, average rents have dropped sharply due to an oversupply of office spaces. At the end of 2023, rents on average had declined 6.3 per cent year on year to 7 yuan per square metre per day.
The rising vacancy rate has put pressure on landlords to cut rents to keep existing tenants or attract new clients, with some offering discounts of up to 50 per cent, according to JLL.