Note: Prime Retail refers to the Urban market. *New Supply is inclusive of the Suburban market. 

Retail market recovery remains sluggish as consumption growth declines. In the fourth quarter, the local retail market was affected by the Covid outbreak in November as demand weakened. For example, F&B and fashion sectors continued to report shrinking profits, further delays on expansion plans, or even surrendering of leased spaces. Those two sectors accounted for more than 50% of the total space surrendered in Urban shopping malls in 4Q22. However, several sectors continued to expand under downward pressure in the fourth quarter as sportswear and NEV retailers were actively seeking leasing opportunities. At the end of 2022, the loosening of Covid restrictions is expected to boost market activities over the short-to-mid-term.

Several projects announce to postpone of their opening. There was no new supply in the fourth quarter – several malls were previously set to enter the market in 4Q22 but failed to open on schedule due to the distraction of Covid. Many future projects were also reported to postpone in the quarter, due to delayed construction schedules or pre-leasing progress.

As a number of tenants surrendered space to landlords, overall market vacancy levels climbed, with Urban vacancy rate further rising by 0.8-ppt to 7.9% and Suburban vacancy rate further increasing by 1.0 ppts to 10.1%. 

Rents decline continues in the downward market trend. As leasing demand further weakened, overall market rents continued to decline. An increasing number of landlords are willing to offer lower rents and more flexible terms to attract retailers and stabilize project performance. Urban rents recorded the largest quarterly decline in 2022, registering at -2.6% q-o-q (-4.4% y-o-y), while Suburban rents dropped by 2.9% q-o-q (-6.2% y-o-y). 

“Despite the short-term disruption of the exit wave of cases, the city already started to witness several positive signals in the last week of December, such as the increase of customer foot flow at restaurants. This is likely to boost market confidence and elevate expectations in 1H23. Rents are forecast to rebound in 2H23,” said Ji Ming, Research Director for JLL North China. 
 

The demand structure remains stable, with a slight increase in health care demand. Despite downward pressure from the economy, overall market demand remained solid in the fourth quarter. Demand growth was moderate in the BALP and TLP sub-markets, which outperformed other sub-markets. Several large-area new leases were completed in these two sub-markets. In terms of sources of demand, e-commerce, supply chain and manufacturing industries continued to account for about 70% of market demand. The Double Eleven shopping festival and other large-scale e-commerce events in the fourth quarter also drove demand for short-term leases in related industries. Additionally, Sino Pharm, the dominant healthcare company, signed a new lease for 12,300 sqm in the fourth quarter, leading to a significant increase in healthcare sector demand. For supply, three new projects, with a total GFA of about 240,000 sqm, entered the market in 4Q22. The three new projects were quickly absorbed, with 90% of the total area pre-leased before they officially entered the market, thus adding limited supply pressure on surrounding projects. The vacancy rate increased slightly for only 0.4 ppt to 5.8% in 4Q22.

Market rent increases 4.3% y-o-y in 2022. Overall rent growth maintained a modest growth trend in the quarter, rising 1.1% q-o-q in 4Q22. Solid demand has offset new supply pressure, keeping rents rising steadily throughout 2022. High-quality projects in major sub-markets led rental growth. At the same time, low-priced areas, such as Pinggu district, also saw the rents gains in 2022. “In 2023, New supply will reach a historical peak,” said Mi Yang, Head of Research for JLL North China. “In 2023, 550,000 sqm of new supply is expected to enter the market. Of the new supply, 60% will be in the Daxing International Airport sub-market.” The large-scale supply will bring a major change to the structure of Beijing’s logistics market, a new submarket — Daxing International Airport will be established in 2023. The vacancy rate will be pushed up to around 9.7% in 2023 due to the large supply, an increase of 3.9 ppts from 2022.
 

Beijing’s high-end residential market cools in the fourth quarter. As transaction activity stalled temporarily, luxury apartment sales fell sharply in 4Q22, down 32.7% q-o-q. However, with the support of high sales in the first three quarters, the annual sales volume in 2022 increased by 66.9% y-o-y. Developers were hindered from launching new projects in the fourth quarter by a new wave of Covid-19. Luxury apartment supply declined, with a total of 2,178 new units launched, down 14.5% q-o-q. However, cumulative new supply for the year reached 9,610 units, up 5.2% y-o-y. Due to the lack of new projects launches, transactions in 4Q22 were mainly destocking of existing projects.

Positive policies may help to further release demand. In 4Q22, as developers introduced preferential policies to boost sales near the end of the year, sale prices dropped by 0.3% q-o-q. “Continued favourable policies sent more positive signals to the market and are expected to boost buyers’ expectations. The recovery of market activity will attract those buyers with a ‘wait-and-see’ attitude. The suppressed demand during the pandemic will gradually be released, supporting sales volume in the following quarters,” said Mi Yang, Head of Research for JLL North China.