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Savills Research

Retail Guangzhou – July 2020

Cosmetics brands with enhanced financial capability expanded notably during Q2/2020.

Savills plcSavills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 600 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.

Steven ZhangDirectorGuangzhou+8620 3665 4879steven.zhang@savills.com.cn

RETAIL

“ Although enquiry volumes and site visits recovered in the Guangzhou retail investment market, the investment sales market remained quiet, and no en-bloc sales transactions were announced during the quarter.” CARLBY XIE, SAVILLS RESEARCH

• Retail sales of consumer goods for Guangzhou decreased by 11.9% year-on-year (YoY) to RMB342.3 billion by the end of May 2020.

• No new shopping centres debuted in Q2/2020, and the citywide total retail stock remained at 5.4 million sq m.

• During Q2/2020, the negative impact of the COVID-19 pandemic became more pronounced, pushing up the citywide vacancy rate by 2.1 percentage points (ppts) quarter-on-quarter (QoQ) to 10.7%.

• The citywide ground-floor average rent decreased by 0.3% QoQ on an index basis to RMB737.7 per sq m per month in Q2/2020.

• Despite the pandemic-hit economy, cosmetics brands grew their businesses and expanded operations in Guangzhou in Q2/2020.

• More international brands were able to grow their sales revenues and fulfil their China expansion plans in Guangzhou amidst the COVID-19 pandemic, leveraging on the continually growing consumer base and taste (for fashion) in the locality.

• Although enquiry volumes and site visits recovered in the Guangzhou retail investment market, the investment sales market remained quiet and no en-bloc sales transactions were announced in Q2/2020.

• Considering new supply pipeline in 2H/2020 and the impact of COVID-19 on most retailers, the citywide vacancy rate is anticipated to increase while average rents should structurally decrease.

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

Carlby XieDirectorSouthern China+8620 3665 4874 carlby.xie@savills.com.cn

RESEARCH

Alvin LauDeputy Managing DirectorSouthern China+8620 3665 4888alvin.lau@savills.com.cn

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COVID-19’s impact becomes more pronounced

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SUPPLYDuring Q2/2020, COVID-19 had a negative impact on the leasing progress of new shopping malls that were supposed to debut earlier in 2020, and landlords had to postpone the opening date of these new projects accordingly. As a result, no new shopping malls entered the market, and citywide total stock remained at 5.4 million sq m by the end of Q2/2020.

DEMANDOverall, the negative impact of COVID-19 on Guangzhou’s retail market became glaringly apparent during Q2/2020. A considerable amount of small- to medium-sized retail stores in the fashion and F&B sectors had to close during the quarter, leading the citywide vacancy rate to increase by 2.1 ppts QoQ to 10.7%.

Some retailers with enhanced financial capability expanded notably during Q2/2020. For example, Yatsen, the parent company of Perfect Diary, completed its latest round of fundraising in April, facilitating Perfect Diary in opening new stores in Luogang Wanda Plaza and CapitaMall SKY+, as well as launching its new brand Abby’s Choice in Grandview Mall during Q2/2020. Some other cosmetics brands also opened up a handful of new stores in Guangzhou, enabled by the brand’s franchising operation model, as were cases with cosmetics collection brands Wow Colour and The Colorist.

More international brands were able to grow their sales revenues and fulfil their China expansion plans in Guangzhou amidst the COVID-19 pandemic, leveraging on the continually growing consumer base and taste (for fashion) in the locality. For example, Alexander McQueen tapped into the Guangzhou market by taking up a retail space at Taikoo Hui. Hermes reopened its Guangzhou store at the same shopping mall and reportedly recorded stunning sales

revenue on its opening day. Moreover, the sneaker giant Nike launched a new retail concept at its Grandview Mall store, making it the world’s first Nike Rise store, following the launch of Nike Live in Los Angeles and House of Innovation in Shanghai in the past two years.

RENTAlthough the market witnessed some small- to medium-sized brands to withdraw from their leased space during the quarter, landlords in Guangzhou remained reluctant to lower rents. As a result, citywide average rent only edged down by 0.3% QoQ on an index basis to RMB737.7 per sq m per month.

INVESTMENTAlthough investor enquiry volumes and site visits recovered in the Guangzhou retail investment market, the investment sales market remained quiet and no en-bloc sales transactions were announced in Q2/2020. The persistent discrepancy of price expectations between investors and landlords remained the key issue in completing deals. Meanwhile, limited investable and salable opportunities, as well as the short residual land tenure of most available opportunities, were the remaining difficulties for investors to overcome.

OUTLOOK The overall retailer sentiment on the market is expected to remain weak, and many business/store expansion plans should continue to be put on hold given the COVID-19 pandemic. With the limited leasing demand, most landlords should continue to feel the pinch when executing their leasing strategies and plans during 2H/2020. On the other hand, although completion dates of new projects were mostly postponed, new supply in 2H/2020 is expected to amount to 424,000 sq m, leading the citywide vacancy rate to increase and the average rent to structurally decrease.

Source Savills Research

GRAPH 1: Total GFA Of New Supply, 2015 to 1H/2020

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2015 2016 2017 2018 2019 1H/2020

sq m

GRAPH 2: Vacancy Rates By Submarket, Q3/2015 to Q2/2020

Source Savills Research

0%

5%

10%

15%

20%

25%

30%

Q3

Q4 Q1

Q2

Q3

Q4 Q1

Q2

Q3

Q4 Q1

Q2

Q3

Q4 Q1

Q2

Q3

Q4 Q1

Q2

2015 2016 2017 2018 2019 2020

Citywide Tianhe Road YuexiuZhujiang New Town Liwan HaizhuBaiyun Panyu

Source Savills Research

GRAPH 3: Rental Indices By Submarket, Q3/2015 to Q2/2020

Source Savills Research

70

90

110

130

150

170

190

210

Q3

Q4 Q1

Q2

Q3

Q4 Q1

Q2

Q3

Q4 Q1

Q2

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Q4 Q1

Q2

Q3

Q4 Q1

Q2

2015 2016 2017 2018 2019 2020

Q1/

20

09

=10

0

Citywide Tianhe Road YuexiuZhujiang New Town Liwan HaizhuBaiyun Panyu

Note Calculation of rental indices for all submarkets starts from Q1/2009 except for: Zhujiang New Town – Q4/2010; Panyu – Q4/2012

Retail

PROJECT SUBMARKET RETAIL AREA (SQ M)

Wanbo Teemall Panyu 150,000

Sihai Cheng Panyu 80,000

TABLE 1: Selected Future Supply in 2H/2020