Beijing’s retailers rebel against rent hikes, stalling any return to pre-pandemic levels

Beijing’s retailers are resisting increases in rental charges in the Chinese capital city’s shopping centres amid a widespread consumption slump, making it unlikely for rents to return to pre-pandemic levels any time soon, analysts said.

Many retail shops are very sensitive to the slightest hike in rents in a stalling economy, putting pressure on landlords to cut prices, or even soften their lease terms to retain tenants, said Sun Tin, director and head of research at CBRE North China.

“The higher a tenant’s gross margin, the better its capacity to pay rent, but it’s hard for landlords to find these high-earning tenants these days,” Sun said, adding that it would be “very challenging” for rents to recover to pre-pandemic levels this year.

As the mainland’s consumption slump and consumers’ lack of confidence spread through the entire economy, many retailers are bleeding out on rent, even if average leases are down by 15 per cent from their pre-pandemic peak, according to data compiled by Jones Lang LaSalle (JLL), a real estate services company.

That is the case at théATRE, a tea-and-dessert cafe in Beijing’s Sanlitun area that is aimed at middle-income families and white-collar consumers. The cafe, which sells jasmine matcha cake for 288 yuan (US$39.70) each, is looking for a 100-square metre (1,076 sq ft) location with steady foot traffic in a core commercial district for a new store. The brand has multiple branches in Beijing and Shanghai.

Rental charges, which account for around 30 per cent of total costs, have lagged behind the economic slump, because leases usually last for three years, and the landlords have not adjusted their budgets, said théATRE’s spokesperson. Cafes had been reducing the footprint of their stores recently to improve their per unit sales and ease the rent pressure, the spokesperson said.