F&B supported China’s 1H23 retail & cold storage markets
The recovery of the F&B sector demonstrated resilience in 1H23 and outpaces other market sectors.
The F&B sector manifested a relatively strong post-COVID comeback
China’s post-COVID reopening initially led to a strong pickup in consumption in early 2023, although the 2Q23 consumption recovery fell short of market expectations. Despite starting from the low base in 2022, China's nominal retail sales growth slowed to 3.1% y-o-y in June from 18.4% in April and 12.7% in May, showing that consumers are still hesitant. The F&B sector, one of the first industries to show signs of recovery, maintained its recovery momentum throughout the first half of 2023 and outperformed other market sectors. According to China’s National Bureau of Statistics data, in 1H23, total F&B revenue reached RMB 2.43 trillion with a growth rate of 21.4%.
Figure 1: National F&B revenue and Y-o-Y growth rate
The rebound of the F&B sector translated into a rise in actual retail and cold storage leasing transactions
During the first half of 2023, demand from the recovering F&B sector took the lead in China’s retail leasing market. Particularly, F&B brands sustained a consistent expansion trend amidst the general market slowdown in 2Q23. Among prime retail market in 10 major China’s Tier 1 and Tier 2 cities tracked by JLL, F&B brands accounted for over 36% of the total new leasing areas in 1H23. This proportion exceeded the levels seen in the pre-pandemic year of 2019 and the best year in the pandemic of 2021.
Figure 2: Newly leased space by F&B brands as a percentage of total newly leased space citywide (by area)
The rebound of the F&B sector also led to increased leasing demand for high-standard cold storage warehouses in China during 1H23. Based on JLL interviews with several top cold-chain warehousing providers in China, approximately 32% of their new tenants in 1H23 came from the F&B industry. Similarly, the F&B sector's contributions to their rental income during this period amounted to over 30%, reaching a three-year high record.
Figure 3: F&B’s Demand for Cold Storage Warehouses
The interviewees also confirmed that the franchised F&B brands dominated the new leasing from the F&B sector in 1H23. A similar trend was observed in new retail space commitments as well. This indicates that the rapid growth of China's franchised F&B market in recent years1, supported by consumers' increasing preference for chain restaurants and improvements in the country's food supply chain quality. The pandemic accelerated the trend. The growing F&B industry with higher franchising levels also fuelled the expansion of upstream food supply chain companies in China, generating increasing leasing demand for high-standard cold storage. For example, Shuhai, a large food supply chain company independent from the Hotpot brand Haidilao, now serves over 4,000 F&B brands with eight cold-chain central kitchens and 43 cold-chain logistics centres in China.
The F&B sector’s leasing momentum likely persist for retail and cold storage properties
We continue to witness sustained investment interests in the broader F&B industry, as F&B brands remain one of the top recipients of investments in 1H23. Notably, this shows growing capital interest in food supply chain firms. Approximately one-third of the firms in the broader F&B industry that received private equity or venture capital investments during 1H23 were upstream food supply chain companies, a significant increase from the 9% seen in 1H212. This highlights the strong growth potential of the overall F&B sector.
Looking ahead, the sustained investment attention and continued infusion of capital will further drive the growth of the broader F&B industry. Moreover, this will help maintain the F&B sector’s leasing momentum to deliver incremental leasing demand for retail and high-standard cold storage properties in the future.