M A R K E T B E AT SHENZHEN Retail Q2 2020 E-Coupon Transactions Help Drive Retail Recovery YoY 12-Mo. Economic activities in Shenzhen have gradually returned to normality as the pandemic containment measures have been eased. Total retail sales of Chg Forecast consumer goods recorded RMB213.32 billion for January-April, down 20.1% y-o-y. But this drop was 2.8 percentage points less than for January- March, with improved revenues in general retail and catering. Beginning in April, district governments have issued E-coupons to stimulate spending, 8.7% reportedly boosting consumption by RMB1.7 billion by the end of May. Health and wellbeing, sports and F&B sectors have led the recovery. Disposable Income Market Indicators Reflect Challenges, but F&B Sector Reactivates Leasing 3.2% Shenzhen’s prime retail stock rose to 4,784,329 sq m by the end of Q2, led by the Futian and Longhua submarkets. The emerging Longhua district Population enjoys less prime stock, but, benefitting from residential clusters, achieved more than 90% occupancy at new projects. Futian district now boasts 1,268,000 sq m of retail stock, with half at Futian CBD. In the extremely competitive submarket some projects adjusted their rental strategies with 6.4% tenants to help mitigate the market uncertainty risk in the post-pandemic period. Futian vacancy rose 3.46 percentage points y-o-y to reach 9.97%, Consumption Expenditure while average rent dropped 11.2% to RMB930.91 per sq m per month. Source: Statistics Bureau of Shenzhen Municipality The market indicators reflect the supply environment and ongoing impact from the pandemic. Citywide, the overall vacancy rate climbed to 6.6% by (Figures are growth rates as of 2019.) the end of Q2. Average rental dropped 9.1% y-o-y, and 1.27% q-o-q, to RMB820 per sq m per month. However, the F&B sector is seeing new Oxford Economics, Cushman & Wakefield Research opportunities, with some players actively seeking space and revitalizing leasing activity. Mall operators are also seizing the moment to enhance tenant SHENZHEN ECONOMIC INDICATORS mixes, and most of the space vacated during the pandemic outbreak has now been reoccupied. Looking ahead, the outlook for consumption is still JAN - MARCH 2019 positive and average rents at mature projects should gradually rebound. YoY 12-Mo. Chg Forecast New Supply Likely to Drive Up Nanshan Vacancy Rate -22.9% With outbound tourism still severely restricted globally, the retail market remains constrained. However, we have seen international brands entering Total Retail Sales of Shenzhen since the end of 2019, and expect these stores to open later this year, benefitting from pent-up consumption demand and bringing a Consumption Goods boosting to the market. Approximately 477,000 sq m of prime retail supply is set to be delivered later this year, with 44% slated for the Nanshan Growth submarket. With indoor entertainment centers such as cinemas still not fully reopened, and with many retail brands now very conservative in expansion, the scheduled new supply is likely to swell the vacancy rate in Nanshan. Elsewhere, as city development advances westward, we believe - new brands will increasingly choose to locate in western submarkets. Online Retail Sales of Goods Growth RENT / VACANCY RATE RETAIL SUPPLY PIPELINE BY SUBMARKET 1,000 5.5% 1,000 20% CPI Growth 800 800 16% m 600 Source: Statistics Bureau of Shenzhen Municipality, 600 12% sq Oxford Economics, Cushman & Wakefield Research 400 ‘000 ‘000 Shenzhen Statistics Bureau has not yet published the /SQM/MO 400 8% 200 Online Sales relevant data for Jan-March RMB 200 4% 0 0 0% 2015 2016 2017 2018 2019 2Q 2020 Bao'an Futian Guangming Longgang Rent Vacancy Rate Longhua Luohu Nanshan M A R K E T B E AT SHENZHEN Retail Q2 2020 MARKET STATISTICS UNDER CNSTR TILL 2023 OVERALL AVG RENT SUBMARKET INVENTORY (SQM) VACANT (SQM) VACANCY RATE (SQM) (RMB/SQM/MO)* Luohu 417,829 11,802 2.8% 662,000 1700.00 Futian 1,268,000 126,440 10.0% 180,000 930.91 Nanshan 1,286,500 95,885 7.5% 854,083 773.64 Longgang 502,000 25,400 5.1% 90,000 528.00 Bao’an 850,000 32,100 3.8% 405,000 700.00 Longhua 310,000 20,500 6.6% 350,000 375.00 Guangming 150,000 3,000 2.0% 50,000 420.00 SHENZHEN TOTALS 4,784,329 315,127 6.6% 2,591,083 820.0 * Rentals are calculated by NLA and considered as consistently achievable for prime space in prime shopping centers, excluding management fee, promotional fee and other fees. SIGNIFICANT STORE OPENINGS Q2 2020 PROPERTY SUBMARKET TENANT SECTOR Zhang Xiao-Duan The Mixc Luohu Benman F&B Senior Director, Head of Research COCO Park Futian Taco Bell F&B South & West China +86 755 2151 8116 / [email protected] One Avenue Futian Huawei Smart Life Digital & Electronic Yitian Holiday Plaza Nanshan Salvatore Ferragamo Apparel cushmanwakefield.com Mixc World Nanshan Mercedes Me Vehicle A CUSHMAN & WAKEFIELD RESEARCH PUBLICATION Uniworld Bao’an Fujiantaoshan F&B Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for SIGNIFICANT PROJECTS UNDER CONSTRUCTION real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with PROPERTY SUBMARKET EXPECTED OPENING DATE SQM approximately 53,000 employees in 400 offices and 60 Baoneng Global Nanshan 2020 132,000 countries. Across Greater China, there are 22 offices OH Bay OCT Bao’an 2020 65,000 servicing the local market. The company won four of the top awards in the Euromoney Survey 2017 and 2018 in the FutureCity Futian 2021 80,000 categories of Overall, Agency Letting/Sales, Valuation and Houhaihui Nanshan 2021 72,083 Research in China. In 2019, the firm had revenue of $8.8 billion across core services of property, facilities and project Joy City Bao’an 2022 100,000 management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter. ©2020 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy..