China's leading retailer Pangdonglai (胖东来) will close a major store with annual sales of 400 billion won. Pangdonglai cited the landlord's rent hike as the reason. The decision draws attention as it comes at a time when the long-standing formula—landlords maximizing revenue by raising rent when a store performs well—is being shaken. Experts said that as China's real estate crisis drags on, the leasing value of retail properties is falling due to oversupply of commercial facilities and sluggish consumption, reversing the bargaining power between landlords and tenants.
On the 13th, according to China Business News, Pangdonglai founder Yu Donglai (于东来) recently said on social media (SNS) that the Xuchang Living Plaza store in Henan province will not renew its lease after it expires this year. Yu said the landlord's rent demand "far exceeded the fair range."
Pangdonglai is a leading Chinese retailer that started in 1995 in Xuchang, Henan province. Although it operates only 14 stores in just two cities, Xuchang and Xinxiang (新乡), as a "local market," it became known for product quality and price transparency, extremely attentive customer service, and high employee treatment. Its popularity has grown to the point that consumers visit Xuchang from other regions just to go to Pangdonglai, and Pangdonglai has emerged as the "role model of the retail industry" that large Chinese retailers benchmark.
The store closing this time is the first large comprehensive store Pangdonglai opened in 2002. With a total floor area of about 14,800㎡ and four floors above ground, it handles a wide range of goods, including supermarkets, apparel, department store items, dining, and pharmaceuticals. According to Pangdonglai, the store's sales last year were 1.799 billion yuan (about 377.7 billion won), accounting for about 7.6% of total sales. In the first half of this year, it also posted sales of more than 977 million yuan (about 205.1 billion won). Earlier, Yu said the store's annual sales exceed about 2 billion yuan (about 419.9 billion won) and operating profit exceeds 100 million yuan (about 21 billion won).
◇ "One shop feeds three generations," a thing of the past in China's real estate
There is a common saying in China's commercial real estate market that "one shop feeds three generations (一铺养三代)." It means that securing a good retail unit can provide stable rental revenue while also promising asset value appreciation. When a tenant succeeds with a store and attracts foot traffic, the value of the trade area rises, and landlords have customarily raised rents during renewals on that basis.
This custom placed a heavy burden on tenants. In one Pangdonglai store, when annual profit exceeded 60 million yuan (about 12.6 billion won), the annual rent nearly tripled during renewal talks, rising from the 8 million yuan range (about 1.7 billion won) to the 24 million yuan range (about 5 billion won). Pangdonglai ultimately gave up on renewing and closed the store.
But the market environment has changed in recent years. As the prolonged slump in China's real estate market and weak consumption continue, e-commerce and live commerce have grown rapidly, reducing customers at offline stores. In addition, the supply of commercial facilities in major cities has increased beyond demand, intensifying competition among landlords to attract quality tenants.
As a result, landlords' bargaining power has declined from the past, and the trend has strengthened of choosing to keep tenants by maintaining lower rents rather than losing them by insisting on high rents, making the formula that "when tenants succeed, rents can be raised" no longer a given.
◇ Store rents fall for a second year… tenants' fortunes reverse
This shift is appearing in the market as well. According to the China Index Academy (中指研究院), rents for stores on major commercial streets and in shopping malls nationwide fell in the first half of this year, extending the decline from the second half of last year.
Among the "top 100 commercial streets" surveyed across 100 major city commercial streets nationwide, average rent was 23.87 yuan per 1㎡ per day (about 5,000 won), down 0.76% from the second half of last year, with the decline widening by 0.29 percentage points from the second half of last year. Average rent at the top 100 shopping malls also fell 0.36% over the same period. In particular, in second-tier cities, more than 90% of those surveyed commercial streets saw rents fall from the previous quarter.
However, polarization by trade area is also emerging, with high rents still maintained in core areas with heavy foot traffic. According to China Business News, the monthly rent for a roughly 25㎡ store for lease on Wuzhong Road in Jing'an District, Shanghai, reaches 58,000 yuan (about 12.17 million won), but a store of the same size on Maoming North Road, about 500 meters away, is around 20,000 yuan (about 4.2 million won).
As a result, landlords in noncore areas are scrambling to reduce vacancies. Zhang Lin (张琳), a director at global real estate services corporation Savills, said, "Even in first-tier cities, (noncore area) landlords are prioritizing minimizing vacancies by lowering entry standards for retail tenants," adding, "Landlords are showing a more realistic attitude than before." Song Hongwei (宋红卫), head of the Tospur Institute (同策研究院), also said, "Vacancy rates for stores in core areas of some second-tier cities have already exceeded 30%," adding, "Bargaining power for stores is shifting from landlords to tenants."