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– 1H/2020 Asian City Report

25th Floor, Two ICC MARKET No. 288 South Road IN MINUTES Savills Research Suzhou Asian City Report Suzhou Asian City Report

Grade A office rents fall as vacancy rates reach multi- COVID-19 had a significant impact on Suzhou’s retail year highs market, both for landlords and tenants

SUPPLY AND DEMAND SUPPLY AND DEMAND GRAPH 3: Shopping Mall Supply and Vacancy Rate, 2015 to GRAPH 1: Suzhou Grade A Office Market New Supply, Net Take-up Suzhou’s retail sales contracted by 9.2% YoY in the first six months of 2020 and Vacancy Rate, 2015 to 1H/2020 Suzhou has seen a swift economic recovery following the outbreak of 1H/2020 Supply (LHS) Take-up (LHS) Vacancy (RHS) COVID-19 and the subsequent lockdowns. Industrial added value from due to the continued fallout from COVID-19, though this figure compares favourably with the 18.4% contraction recorded in the first quarter. Online 600,000 35% above a designated scale in Suzhou increased by 1.6% year-on-year (YoY) Supply (LHS) Vacancy (RHS) in 1H/2020, while the value of monthly output recorded four consecutive retail sales, however, recorded phenomenal growth, expanding 37.6% 1,250,000 15% months of growth. Suzhou’s four leading industries, namely biomedicine, YoY. Under the promotion of policies such as the “night economy” and 500,000 30% new-generation information technology, nanotechnology and artificial consumer coupons, Suzhou’s retail market recovered swiftly in 1H/2020. intelligence contributed 21.6% of total added value. In line with national Online and offline retail sales of consumer goods from 23 key enterprises 1,000,000 12% 400,000 25% policy directives, the investment in emerging industries grew rapidly, totalled RMB870 million over the Labour Day holiday, up 2.8% over the reaching RMB57.2 billion in the first half of 2020, up 32.6% YoY. same period last year. 750,000 9% 300,000 20% The establishment of Pilot Free Trade Zone in August 2019, which No new projects were launched onto the market in 1H/2020, with the total includes three areas in , Suzhou and , in combination retail stock staying at 6.5 million sq m. sq m sq m 200,000 15% with proactive promotion of investment opportunities in Suzhou and 500,000 6% increased transparency brought by the launch of the Infographic Guide In terms of market demand, Suzhou is still favoured by domestic chain To Investment In Suzhou, have helped to increase utilised foreign direct brands, but most of the new stores were opened before the outbreak of 100,000 10% COVID-19. Yitiao ( ), a lifestyle e-commerce platform opened an offline 250,000 3% investment in Suzhou, eventually totalling US$7.83 billion in 1H/2020, up 一条 151.6% YoY. store in Suzhou Centre; In City introduced Nayuki’s Bla Bla Bar, a sub- 0 5% brand of Nayuki’s Tea, on its first floor; leisure and entertainment brand No new Grade A office supply was launched onto the market in 1H/2020, Hophub Trampoline Park and popular milk tea brand Machi Machi entered 0 0% the first floor of Longfor Shishan Paradise Walk. 2015 2016 2017 2018 2019 1H/2020 -100,000 0% with existing stock remaining at 2.0 million sq m. 2015 2016 2017 2018 2019 1H/2020 Source Savills Research Key occupier demand came from the finance, real estate, professional Emerging domestic brands supported by financial backers maintained services and IT sectors with tenants relocating to new, high-quality their rapid expansion despite the impact of the epidemic, such as the Source Savills Research projects, such as Suzhou Centre, Tishman’s The Summit and other online-to-offline imported products marketplace KKV, as well as skincare landmark projects in the West (SIP) business area. and makeup collection stores the Colorist and Wow Colour. Tenants preferred high-quality office buildings and co-working spaces, but GRAPH 4: Shopping Mall Rental Index By Selected Areas, Q3/2015 to Q2/2020 a key selling point was landlords and spaces that had minimal or no fit-out RENTS AND VACANCY RATES costs in order to reduce cash flow pressure on tenants in the short term. Citywide vacancy rates increased by 3.4 ppts YoY to 12.2% in 1H/2020. Citywide West SIP East SIP Guanqian SND Wuzhong The increase in vacancy rates resulted from smaller retailers under cash GRAPH 2: Grade A Office Rental Index By Selected Areas, Q3/2015 flow pressure permanently closing locations as well as some larger brand 120 to Q2/2020 RENTS AND VACANCY RATES 21,844 sq m of Grade A office space was handed back to the market in making store network adjustments. Sectors particularly affected by 115 1H/2020. Given no new supply, the citywide Grade A office vacancy rate COVID-19 included the F&B and apparel sectors. Several shopping malls in increased by just 0.4 of a percentage point (ppt) YoY to 29.8%. Several more suburban locations suffered a more significant impact as owners saw Citywide West SIP East SIP Downtown SND Moon Bay 110 small-and mid-sized enterprises closed operations, mainly affected by the tenant defaults and store closures. 135 pandemic. East SIP and Moon Bay area saw vacancy rates increase more First-floor rents fell 1.0% YoY to an average of RMB336.0 per sq m per 105 130 significantly than other areas. However, as business activity started to return to normal in Q2/2020, high-quality office buildings, especially in month in 1H/2020 with every submarket recording declines. Many Q2/2013=100 125 West SIP, saw an increase in relocation tenant enquiries, eventually driving landlords gave rental concessions or extended rent-free periods to attract 100 up occupancy rates in this business area. new brands. 120 95

115 Due to the significant impact of COVID-19 on the economy and the office RETAIL MARKET OUTLOOK market, Grade A office rents fell 7.3% YoY to an average of RMB92.9 per sq A number of retail centres originally scheduled to be handed over in the 90 Q1 Q1 Q1 Q1 Q1 Q2 Q2 Q2 Q2 Q2 Q3 Q3 Q3 Q3 Q3

110 Q4 Q4 Q4 Q4 Q4 Q1/2012=100 m per month. To contain the economic fallout of the epidemic, the Suzhou first half of 2020 have been delayed to 2H/2020 or early next year. There are now eight projects with a total GFA of 700,000 sq m scheduled to open 2015 2016 2017 2018 2019 2020 105 government encouraged state-owned enterprise to offer rent reduction and exemption policies for SME tenants, which lasted for nearly two in the second half of 2020, including Longfor Xinghu Paradise Walk, Hong Source Savills Research 100 months. Additionally, some private landlords also gave rental discounts or Tang Shopping Mall and High-speed Railway Plaza. Projects are reduced effective rents by preferential measures such as rent-free periods mainly located in emerging business areas and some represent the first 95 in order to retain tenants and maintain stable tenant occupancy rates. large-scale retail centre in a particular region. Q1 Q1 Q1 Q1 Q1 Q2 Q2 Q2 Q2 Q2 Q3 Q3 Q3 Q3 Q3 Q4 Q4 Q4 Q4 Q4 2015 2016 2017 2018 2019 2020 OFFICE MARKET OUTLOOK International retailers recognise the progress of Suzhou’s economic Suzhou’s Grade A office leasing market saw no new supply in 1H/2020, recovery and consumer appeal and are still optimistic about the future of Suzhou’s retail market. Costco’s third store in Mainland China will be Source Savills Research but many Grade A office developments are scheduled to launch in the RESEARCH next three years, such as Suzhou ICC (2021) and Vanke projects (2022) located in Xushuguan area of Suzhou New , adjacent to Aeon Mall James Macdonald in West SIP. Additionally, Suzhou Zhongnan Centre, which will be the SND, Decathlon and IKEA. Senior Director, China tallest building in Suzhou, started construction in Q2/2020. The market is +8621 6391 6688 also expected to receive some high-end sales development in the coming [email protected] quarters, including the launch of Suzhou IFS in 2H/2020. April also saw the announcement of the SIP-Xiangcheng Cooperation Savills is a leading global real estate service provider listed on the London Stock Exchange. The Zone, jointly built by SIP and Xiangcheng District. Located just to the north company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads of Xiangcheng business district and nearby Caohu Lake, the area covers rather than follows, and now has over 600 offices and associates throughout the Americas, , Asia Pacific, Africa and the . This report is for general informative purposes only. It may 50.58 sq km. The development will be led by Sungent ( ), not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any 苏州新建元控股集团 and jointly invested in by Suzhou Urban Investment Group ( ) contract, prospectus, agreement or other document without prior consent. Whilst every effort has 苏州城投集团 been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or and Xiangcheng Urban Investment Group ( ). consequential loss arising from its use. The content is strictly copyright and reproduction of the 相城城投集团 whole or part of it in any form is prohibited without written permission from Savills Research.

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