Amidst lackluster consumer demand and an economic slowdown, owners of commercial properties in Shanghai are feeling the heat to cut rents to support struggling restaurants and retailers.
Shopping centers and retail outlets in the city’s non-central business district (CBD) areas are particularly hard hit, with developers and property brokers anticipating a rise in vacancy rates due to the closure of unprofitable businesses.
A senior executive with a major state-owned commercial property developer in Shanghai revealed that nearly all tenants were requesting reductions in rents during lease renewal negotiations. Some business owners even threatened to shut down if rents weren’t renegotiated, highlighting the severity of the situation.
The pressure to reduce commercial rents comes after Shanghai, China’s business and financial hub, failed to meet its growth target in 2023, with its gross domestic product remaining flat after the country’s reopening following the Covid-19 pandemic.
Zhang Yixiang, owner of a restaurant in Tangqiao, Pudong New Area, shared his struggle, stating, “I have requested the landlord to slash the rent by 20 per cent to help me survive the economic slowdown.” 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 indicates 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. Newly built shopping centers are also offering discounts on rent to attract clients, further adding to the pressure on the market.
Meanwhile, in Shanghai’s grade-A office market, average rents have dropped sharply due to an oversupply of office spaces. Rents declined 6.3 per cent year on year to 7 yuan per square meter per day at the end of 2023. Landlords are now under pressure to cut rents to retain existing tenants or attract new clients, with some offering discounts of up to 50 per cent, according to JLL.
The economic slowdown and changing consumer behaviors, such as increased online shopping, are forcing physical store operators to adapt their business models. The local government is trying to stimulate consumer spending by organizing various shopping festivals.
Despite the challenges, some sectors like outdoor sports, traditional Chinese clothing, and second-hand jewelry trading are seeing strong demand, which could help boost occupancy rates in the city’s shopping centers. However, landlords and businesses alike are facing tough decisions as they navigate through these challenging times in Shanghai’s commercial property market.
(Source: SCMP)
