Last year, Shenzhen’s newly opened high-quality malls – be it those in suburban areas or in the urban area’s emerging precincts – all saw impressive performances in their commitment rates, despite the record high annual new supply of 0.9 million square metres. The average commitment rate of new malls upon opening was 96 per cent in Shenzhen in 2017, higher than other Tier I cities such as Beijing, Shanghai and Guangzhou.

Uniwalk, Shenzhen’s largest shopping centre (360,000 retail GFA) as at 4Q17, achieved an impressive 100 per cent commitment rate and attracted more than 400,000 visitors on its first day of opening. The main factors driving the good performance of newly opened malls in 2017 include the supply of high-quality malls by well-known developers, as well as a growing consumer appetite.

New supply of retail malls welcome in Shenzhen

High-quality malls, especially those by well-known developers, used to be in short supply in Shenzhen. By end-2016, the prime retail space per capita in Shenzhen was only 0.31 square metres, lower than that in Beijing or Shanghai.

Several retail projects by well-known developers entered Shenzhen in 2018. These projects are generally ingeniously designed with contemporary concepts, and able to attract a wide range of consumers through its comprehensive trade-mix and diversified offerings. Consequently, retailers are more willing to set up stores in such malls.

Shenzhen’s fast increasing consumption is driving developer optimism and active retailer activity. The rising disposable income and growing population are stimulating the city’s growth. Demand for fashion and other services are on the rise, with more residents willing to buy such goods locally.

With the city’s economic fundamentals driving this steadily growing consumption, the high commitments seen in the retail sector from 2017 are likely to follow at least in the near future, and we retain an optimistic outlook for Shenzhen’s retail market.

Leasing demand likely to keep up despite large supply

Leasing demand is likely to keep up despite the large volume of supply in coming years. The gradual decentralisation of the retail market will result in retailers actively expanding into suburban malls, while the urban areas will benefit from further localisation of fashion and luxury demand.

The growth in mid-to-high and high-end consumption will be driven by rising income and narrowing price gaps between China and Hong Kong, which leads to stronger leasing demand from these retailers in the urban area. As retailers flock to high-quality malls, particularly to malls with convenient public transportation or high-density populations, there will likely be better rental performance for both the urban and suburban areas.

From a long-term perspective, Shenzhen will also attract more investor attention because of a better rental outlook and a maturing retail market. Considering the limited transaction opportunities in the urban area and the rapid growth of suburban market, investors could consider assets in the suburban area as more viable options.

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