In Shanghai, vacant storefronts abound, but it’s still a struggle to find space

Shanghai coffee shop owner Rose Liu avoided massive losses during the pandemic, partly thanks to a tarot card reading in early January 2022.

The reading predicted her business would lose money that year.

“At first I didn’t believe it because the Lunar New Year holiday was just around the corner, and that is usually good for business. Then I came across a fortunetelling master who also said my business would lose money — at least 100,000 yuan [$14,000] if I was still open in March,” Liu said. “That scared me, and I closed shop in February 2022.”

A month later, Shanghai slid into lockdown. The city would stay in various stages of lockdown until early 2023.

Last spring, after Liu had a baby, she started looking for a space to lease.

“I still want to do a coffee shop plus a three-room bed and breakfast,” she said. “The hunt [for a space] has been very miserable.”

Like China’s housing market, commercial properties have been going through a rough patch. In Shanghai, China’s financial hub, the retail vacancy rate during the third quarter of last year hovered between 9.3% and 12.3%, depending on which industry report you consult. But the vacancy rate is certainly higher than the 8% seen before the pandemic. Within a one-block radius of Marketplace’s Shanghai bureau, 16 shops sit empty — the highest number observed since I arrived in 2017.

Although more shop spaces are available, Liu wants to set up in the priciest part of Shanghai — the former French Concession, where the slowing economy’s impact is less visible.

“The economic environment in Shanghai is not very good,” said real estate agent Gao Song, who works in the area. “Those who had stable income might have — gosh, can I talk about this?”

Like a lot of people I speak to, Gao is afraid of saying something that would get him in trouble with Chinese authorities.

I told him I am not looking for sweeping pronouncements on the Chinese economy. I only want to know what’s happening to Gao’s business in the area.

At first, he painted a rosy picture.

“The shop spaces I have are very much in demand. Sometimes a place will be rented out even before the previous tenant moves out.”

As Gao took me around, it became clear why his business is doing OK. He’s already got rid of properties that lost money.

Gao pointed to a four-story building. “We used to rent this building, but couldn’t sublease it out for six or seven months. So, we gave it back to the landlord,” he said. “We lost last year around 600,000 yuan [$84,000] to 700,000 yuan [$98,000].”

His friend and sometimes collaborator Darren Tang has also returned large properties he had.

“Big spaces are hard to lease now. We have returned many properties we had,” Tang said. “Rents have dropped a lot from five years ago. It’s not easy to do this business. Bigger spaces have cut rent by 30%.”

Yet the type of shop Rose Liu wants — 2,200 square feet with a license to make light food — is proving hard to come by.

“The Shanghai government has issued fewer business licenses [in the former French Concession] after the pandemic,” Liu said.

Also, she faces increased competition from big brands with seemingly limitless budgets. Liu is looking at paying three times more than she did for her previous space.

“There is [a big coffee chain] around the corner. The company took over that space, and it sat empty for three years before opening,” Liu said. “The company just wanted to lock in the good location. If the market price was 20,000 yuan [$2,800] per month, the [big brand] would offer 30,000 yuan [$4,200].”

Another set of rivals she has to contend with are laid-off workers and college graduates struggling to find work.

“People think shop rentals should be cheaper since the economy is not good. But it’s because of the slow economy. Many people want to start their own businesses now,” Liu said.

Not all these newbies who boost demand for shop space are experienced retailers. That is why Gao and Tang are trying out a new business model.

Their latest space is on Julu Road in an area with high foot traffic. It’s a short-term rental — a pop-up store.

“Many young people want to open a shop, but many of them don’t have a mature idea. With this type of pop-up space they can test out their business concept,” Gao said.

As for Liu, she is still looking for her dream space.

“I planned to open my business last August. Now I don’t have a plan,” she said. “I think the market is in transition after the Shanghai lockdown. Between the pandemic and the sluggish economy, it will take time for the [commercial property] market to find a new balance point.”

When Liu does find a space, she said, the first thing she’ll do is consult a fortuneteller.

Additional research by Charles Zhang.