Industry / Real Estate

Retail Real Estate (China)

Group Research / July 29, 2020

Photo Credit - AFP

Overall Outlook

  • Gradual recovery towards pre-COVID-19 level. Retail sales decreased 5% y-o-y in 5M20, with a narrowed decline of 2.8% y-o-y in May. Commodity retail sales from 5,000 key retail enterprises (a proxy for offline sales) decreased 10.5% y-o-y in May, vs. -23.9% y-o-y in April. Foot traffic and tenants’ sales in retail malls of experienced landlords went back to >70% of pre-COVID-19 level in May, although some experience-related elements are not allowed to reopen yet. CR Land’s tenants’ sales grew 26% y-o-y in May, driven by strong sales growth of luxury brands. Looking ahead, consumer sentiment is expected to recover further. Yet, the government’s social distancing measures may continue to drag on the recovery of offline education/entertainment.

  • Landlords were generally offering a rental concession period of 1-1.5 months in 1Q20, to relieve COVID-19’s impact on tenants. Average occupancy for the key tier-1 and -2 cities improved by 0.6ppt to 6.6% by end-1Q20. Most lease terminations came from the F&B segment, while new fresh retail and supermarkets outperformed during the period. The disruption deferred leasing demand, putting pressure on rents. As a result, average ground floor rents dropped by 0.9% q-o-q in major tier-1 and -2 cities.

  • 2020 rental impact likely to be c.16%, but rental growth likely to pick up next year. Based on our scenario analysis, full-year rental income is likely to drop by c.16% in 2020, based on our assumptions of 1.5 months rent-free period in 1Q20 and half turnover rents in 2Q20. EBITDA margin is likely to stay flat or decline slightly, on local governments’ tax waiver and lower promotion/activity expenses during the COVID-19 outbreak. Yet, we saw encouraging sales recovery of late and we expect this to continue. In terms of sequence of a full recovery, we expect luxury malls to pick up first, followed by community/neighbourhood malls.

  • Performance to polarise further. Commercial gross floor area (GFA) of new starts has slowed down in major cities since 2015/2016. While oversupply concerns persist, landlords’ operating capability varies, leading to polarised performance. Major listed Chinese landlords continued to grow their retail sales and rental income at a double-digit rate in FY19. Online sales, especially those from cold-chain e-retailers, will likely speed up post-pandemic. Yet, unlike other countries, China has the largest e-commerce market in size and highest e-commerce penetration rate. In our view, e-commerce is less of a threat to quality landlords as they have already figured out a way to offer a differentiated shopping experience. Meanwhile, major e-retailers, especially new fresh retail and omnichannel retailers are expanding their offline exposure.

To read the full report clcik the download link below.

Our In-House Expert

Ken HE Liang
+86 21 3896 8221

Related Reports

Disclaimers and Important Notices


The information herein is published by DBS Bank Ltd (the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.


General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission and/or by DBS Bank (Hong Kong) Limited which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Where this publication relates to a research report, unless otherwise stated in the research report(s), DBS Bank (Hong Kong) Limited is not the issuer of the research report(s). This publication including any research report(s) is/are distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS Bank (Hong Kong) Limited. This report is intended for distribution in Hong Kong only to professional investors (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules promulgated thereunder.)
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.
Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment  banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR
Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.
Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.
United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.
Dubai This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
United States This report was prepared by DBS Bank Ltd.  DBSVUSA did not participate in its preparation.  The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize.  Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.
Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd
12 Marina Boulevard, Marina Bay Financial Centre Tower 3
Singapore 018982
Tel. 65-6878 8888
Company Regn. No. 196800306E