Summary of Key Points
Pang Donglai decided to close its successful store located at the Xuchang Life Plaza due to rent rates that were "well beyond what could be considered fair." This store, with annual sales of 2 billion yuan and a profit of over 100 million yuan, represented a golden opportunity. However, this incident highlights the vulnerable position that physical merchants have often been in rental agreements in the past—landlords would frequently raise rents maliciously when merchants were doing well, exploiting their power for profit. But with an oversupply of commercial real estate and e-commerce stealing customers, the era where one shop could support multiple generations of a family is over. Tenant rights are gaining strength, and landlords are now starting to lower rents to retain tenants, leading to a healthier rental ecosystem.
I. Pang Donglai Challenges the Landlord: Why Close a Profitable Store?
Pang Donglai's Xuchang Life Plaza store has been in operation for 24 years, generating nearly 2 billion yuan in annual sales and a profit of over 100 million yuan—a true money-making machine. But why did its founder, Yu Donglai, decide to close it? The reason is simple: the rent was simply outrageous.
When the lease was signed in 2015, a mistake by the staff led to some rent increases that were utterly unfair. This wasn't the first time Pang Donglai faced such issues with rents. Previously, at their "Dapang" store in Xinxiang, when the annual profit reached six to seven million yuan, the landlord raised the rent from 8 million yuan to 24 million yuan, prompting Yu Donglai to give up and relocate the business.
Yu Donglai's stance is clear: fairness is essential when it comes to making money; they won't allow landlords to exploit them. No matter how profitable the store is, if the rent is unreasonable, they prefer to close it rather than compromise.
II. Landlords' Tactics: Raising Rents When Business Is Good, and Exploiting Power for Profit
In the past, physical merchants faced many difficulties, largely due to landlords' exploitative practices. Two common tactics were:
1. Exploitative Rent Increases: When a merchant's business was thriving, landlords would assume it was their property that made the profit and raise rents significantly. For example, in Shanwei, Guangdong, a restaurant's rent accounted for nearly 80% of its profits; a small shop on Wujiang Road in Shanghai charged a monthly rent of 58,000 yuan (77 yuan per square meter), which was almost three times more expensive than another shop 500 meters away on Maoming North Road.
2. Power Exploitation: Some large landlords would use their influence to demand additional payments or "benefit fees" from merchants, threatening to raise rents or not renew the lease otherwise. Merchants had no choice but to compromise or bear the costs of renovation and equipment replacements, often resulting in closure.
Worse still, there are currently no specific regulations in China to address such malicious rent increases, leaving small and medium-sized merchants with no recourse. For instance, the closure of the Mixue Ice City store in Tsim Sha Tsui, Hong Kong, was due to unaffordable rents.
III. A Change in the Balance of Power: Why Are Tenants Suddenly More Assertive?
In recent years, the situation has changed. Merchants are no longer at the mercy of landlords for several reasons:
1. Overupply of Commercial Real Estate: There are too many shopping malls and commercial streets, leading to high vacancy rates. In some second-tier cities, core business districts have vacancy rates exceeding 30%, forcing landlords to be more cautious about raising rents.
2. E-commerce Stealing Customers: Online shopping and live streaming have stolen business from physical stores, reducing merchants' profits and making them more sensitive to rent increases. If landlords don't lower rents, merchants may close, leaving the properties vacant and causing financial losses.
Data supports this trend: In the first half of 2026, rents across the country's top 100 commercial streets and shopping centers declined—average daily rent for commercial streets fell by 0.76%, and for shopping centers by 0.36%. Many landlords are now lowering rents to retain tenants. For example, cafe owners in Shanghai's core business districts have offered rent discounts to ease the pressure on merchants.
IV. The Future of Rental Relationships: From "Landlords Dictate" to "Tenants Have a Voice"
The rental market is undergoing a transformation:
- Landlords Becoming More Practical: Landlords in previously sought-after areas are now more willing to lower rent rates to ensure occupancy.
- Enhanced Tenant Bargaining Power: Established brands (like Pang Donglai) and innovative businesses (such as internet-famous stores) can negotiate better terms and choose better locations.
- A Healthier Ecosystem: In the long run, landlords and merchants will move towards a win-win situation, with landlords no longer raising rents arbitrarily and merchants being able to operate stably. For instance, the Chongqing People's Congress has suggested issuing guidelines for rent reductions, indicating that more policies may be introduced to protect merchants' rights.
In short, the role has shifted from landlords dominating rental agreements to tenants having a greater say. The rental relationship in physical commerce is becoming more equitable.
Conclusion
Pang Donglai's decision to close its store is not an isolated incident; it reflects a broader shift in the dynamics of physical commerce rentals. The change from one shop supporting multiple generations of a family to tenants having more power reflects changes in market supply and demand. This is good news for merchants, as they no longer have to tolerate arbitrary rent increases. It also means landlords must adapt to new rules if they want to continue making money in the long term. A healthier rental ecosystem for physical commerce is beneficial for consumers, as it will result in more stable and successful businesses.