Savills World Research Shanghai

Briefing Retail sector July 2017

Image: Tea Opal, Huaihai Road (M) SUMMARY Successful openings of new projects with high pre-commitment rates continuously improved occupancy rates.

 Retail sales grew by 8.2% year- areas to an average of RMB50.2 on-year (YoY) in the first five months and RMB16.6 per sq m per day “The number and scale of project of 2017, 0.4 of a percentage point respectively. (ppt) higher than the same period in refurbishment in 2017 have never 2016. ­ Vacancy rates remained at 6.3% been seen before in Shanghai's in prime retail areas, while they retail market. The new life ­ Four new projects or 349,700 sq decreased 0.6 of a ppt YoY to 8.7% m of new supply, launched onto the in non-prime retail areas in Q2/2017. being breathed into these older market in the second quarter of 2017. developments have the chance to ­ F&B maintains its position as the stimulate leasing demand in prime ­ First-floor shopping mall rents largest occupier in the Shanghai retail increased 0.2% quarter-on-quarter market. areas in 2018.” James Macdonald, (QoQ) in prime and non-prime retail Savills Research

savills.com.cn/research 01 Briefing |Shanghai retail sector July 2017

Market commentary GRAPH 1 Four new projects held soft openings Vacancy rates by area, Q2/2017 in the second quarter, adding a total of 349,740 sq m of new supply to the Prime Secondary Decentralized market. 12%

Likely to be the last major mixed-use 10% development along Nanjing Road (W), HKRI Taikoo Hui introduced over 20 8% new brands to Shanghai including

1,300 sq m Space Cycle and 2,700 sq 6% m Starbucks Roastery and Reserve Tasting Room. The project also boasts 4% a rich array of cosmetic and skincare stores such as Cha Ling, Shu Uemura and Atelier Cologne. 2%

Raffles City Changning, a 360,000 sq 0% m mixed-use development, was built Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17

around St Mary's Hall, a Christian Source: Savills Research school built in 1923. The project is positioned slightly higher than the GRAPH 2 neighbouring Cloud Nine Shopping Mall, with its first floor occupied by Types of newly committed F&B tenants in tenants such as Attos, Apm Monaco Q2/2017 and Tommy Hilfiger. The project also offers a number of popular overseas Western F&B brands such as White Castle from Asian 6% the US and Old Street from Singapore. 6%

King 88 introduced Korean home and furniture brand Hanssem as its Café & Dessert anchor tenant. Hanssem, He Ma Xian 16% Sheng supermarket and Will‘s gym accounted for close to half of the space occupied.

Vivo City is the third 100,000- plus Chinese 72% sq m shopping mall opened in the competitive west Minhang area during the past 12 months, where another 440,000 sq m of new supply is scheduled to be completed in the Source: Savills Research second half of 2017. Children-related tenants are present in large numbers in the project, with approximately 18% record a decrease of 0.5 ppt QoQ to average prime locations, but could of space allocated to the category, 8.0% by Q2/2017. usually offer 60% to 70% discount to much higher than its competitors such prime rental level. as Vanke Mall, Powerlong Qibao Plaza If the new supply was excluded, the and Minhang Plaza. Fanpekka and majority of take-up would have been In prime retail areas, a total of Pony Running opened their first stores contributed by decentralized areas, 300,000 sq m of retail space is under in Shanghai and received positive which account for 48% of the city's refurbishment, which is equal to feedback from shoppers. total shopping mall stock. Although 12% of the city's total prime stock, oversupply remains a concern on a scale never seen in Shanghai As all new projects opened with high citywide level, certain areas are before. There have been talks on the pre-commitment level, and occupancy less exposed but still on retailers’ fading attraction of prime locations rates in the newer 100,000 plus sq radar such as Zhangjiang in Pudong as more large scale, modern-design m projects continued to improve, new district. Zhangjiang recorded a decentralised malls draw footfalls citywide vacancy rate managed to vacancy rate of only 4.3%, lower than from the city centre. However, key

02 Briefing |Shanghai retail sector July 2017

challenges to projects in prime The sector maintained its momentum Mature shopping malls are also locations are still more related to in 2017. In the second quarter, becoming more selective on the outdated facilities and management F&B tenants leased approximately number of restaurants with size over and less about leasing demand. 11,800 sq m of space in prime areas 800 sq m, which used to enjoy a We believe demand is likely to be (excluding the newly opened HKRI long-term lease period and lower rents stimulated by these refurbished Taikoo Hui), equivalent to a quarter of but are now subdivided to a number spaces offering better conditions for the space that was vacant last quarter. of 100 to 250 sq m units. The more retailers. In the second quarter, both Chinese F&B was particularly active, stringent firefighting requirements are Zara Home and Gap expanded their accounting for a 72% share of the also challenging to both landlords and store sizes on Nanjing Road (W). On total new leased F&B space. F&B owners. Nanjing Road (E), Shimao Festival City, which has closed down for upgrading Among the space newly leased by It is unlikely that F&B managers will and refurbishment, announced that Chinese restaurants, only 27% was enjoy an easier life in near future. Not a number of flagship stores including previously occupied by other Chinese only is the threshold of entering a Nike, Sephora and Pandora will open restaurants; the rest were either good shopping mall getting higher, in 2018. vacant, operated by Asian or Western the government's recent initiative to cuisine or for non-F&B usage. Honey close down unlicensed street stores The momentum of F&B & Honey took over partial space also makes it harder for start-ups to persists previously occupied by Life By City find suitable locations. The average F&B is one of the strongest expanding Super in Raffles City while Yi Dao took size of restaurants is also expected to sectors among all tenant categories. over some units in Yifeng Galleria continue to shrink and home delivery During the past three years, the sector which have been vacant for over one services will be more popular to cover continued to increase its market share. year. increasing costs.  By the end of 2016, F&B was the largest occupier of the city's shopping The competitive F&B market is mall market, accounting for 23% of pushing up rents and forcing many the total occupied space. restaurants to reduce store sizes.

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