Shanghai’s commercial property owners continue to struggle with elevated vacancies and rent reduction demands as the country’s zero-Covid policies hamper retail and hospitality.

Vacancy rates at shopping centres, wet markets and street shops are set to rise due to weaker consumer sentiment, according to analysts.

“No business recovery can be expected in the near future as more tenants plan to close down their shops,” stated Zhou Lingzi, a senior manager with a state-owned commercial property operator. “Even rent cuts can do little to boost occupancy rates.”

Last month, a survey carried out by Shanghai-based property agency, E-house R&D Institute revealed that there was a 9% vacancy rate in 20 grade A office buildings and shopping centres, exceeding the 5% “warning line.”

Shanghai’s economy contracted by 5.7% in the first half of this year, South China Morning Post reports. However, the full-year economic output could remain the same as last year, due to increasing infrastructure construction in the second half of the year.

“Landlords are under pressure to either lower rents or give tenants rent waivers this year,” according to Song Yulin, a senior manager with property agency 5I5J in Pudong New Area. “A rising number of restaurant and small shop owners are threatening to close down their businesses, so more retail spaces may become vacant.”

Shanghai’s government required state-owned commercial landlords to exempt tenants from paying rent for up to six months at the end of March. However, the same does not apply to private landlords.

Furthermore, according to the local statistics bureau, between January and August, Shanghai’s retail sales declined 12% compared to last year, to 1.04 trillion Yuan (US$145.3 billion). Revenue within hotels and restaurants fell 27.5% to 69.5 billion Yuan.