In the mid-2025, we discern the glimmer of a possible turn-round ; embracing this departure, the industry sails toward a voyage of reinvention where lights lead ahead.
China’s consumer market remained generally stable in H1 2025, with total retail sales reaching CNY 24.5 trillion (+5.0% YoY), and merchandise retail growth (5.1%) surpassing catering for the first time in recent years. However, June saw catering growth slow to 0.9%, a post-pandemic low. Household appliances, AV equipment, and culture/office supplies saw strong growth (over 25% YoY), spurred by government subsidies, while telecom, furniture, and sports/entertainment also exceeded 20%. In contrast, automobiles, apparel, and cosmetics lagged, reflecting caution in traditional retail sectors. The “618” e-commerce festival boosted online sales growth to 8.5%, narrowing the gap with offline retail, while e-commerce penetration rebounded to 24.9%. Holiday tourism revenue also grew by nearly 10%, with inbound tourism reaching new highs.
New supply in 21 major cities totaled 2.1 million sqm in H1 2025, down 27.5% YoY, marking a clear slowdown in prime retail property expansion. Tier-1 cities accounted for 61% of new supply, as developers concentrated on top-tier markets. The top 30 developers now hold over 50% market share. Despite lower supply, average vacancy rates rose to 10.5%, with Tier-1 cities reaching 8.4% (+1.1ppts), Tier-1.5 cities stable at 10.8%, and Tier-2 cities edging down to 12.1%. Vacancy rates are expected to peak within the next year before declining as the market stabilizes.
Retail demand remains under pressure due to structural shifts and weaker fundamentals. Tenant demand is moving from high-rent to low-rent categories, causing structural rent declines, while retailers’ weaker sales are reducing their ability to pay rent. As a result, prime ground-floor rents in the 21 cities dropped by 2.8% in H1 2025, with Q2 declines outpacing Q1.
Despite these challenges, four key trends are reshaping the sector:
- Demographic Adaptiveness: Household spending is subdued, but the rise of single consumers is fueling growth in companionship-related consumption.
- Value Recognition: Luxury sales softened, but cultural collectibles, C2M models, and brand-free goods (via live commerce) are gaining traction among younger consumers.
- Retail Place Making: Retail environments are shifting from transactional spaces to social destinations, with longer customer stays but lower per-transaction efficiency, offset by extended business hours and a vibrant nighttime economy.
- Home-grown Retailer Power: Domestic “guochao” (Chinese-trendy) brands are gaining momentum across categories, showcasing China’s growing influence in design and retail innovation.
Looking ahead, new retail supply in 2025 is projected at around 8 million sqm, with actual completions likely under 7 million sqm due to preleasing challenges. The next three years will see a “supply ebb phrase,” with development focused on Tier-1 and Tier-1.5 cities. Vacancy rates are expected to peak by end-2025 and gradually decline from 2026, supporting improving market sentiment. Tier-1 cities are forecast to lead the recovery, with rents stabilizing in 2027 and national stabilization expected by 2028.