CHINA RETAIL PROPERTY MARKET WATCH 1H 2016 中国商铺市场观察 2016年上半年 RESEARCH 研究报告 MARKET HIGHLIGHTS Mid-Range Retail Brands Drive Demand
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CHINA RETAIL PROPERTY MARKET WATCH 1H 2016 中国商铺市场观察 2016年上半年 RESEARCH 研究报告 MARKET HIGHLIGHTS Mid-range retail brands drive demand Amid relatively modest GDP growth of Victoria’s Secret opened its first China 6.7% in China in the first half of 2016 flagship store in Shanghai, taking up (1H 2016), growth in retail sales value space formerly housing one of Louis decelerated slightly to 10.3% year Vuitton’s four retail outlets in the city, on year (Y-o-Y) to RMB15.6 trillion, while fast-fashion brand Bora Aksu compared with 10.7% in 2015 and also opened its first store in China in 12.0% in 2014. Meanwhile, annual China World Mall in Beijing. Meanwhile, growth in per-capita disposable income experimental retailers were active during and consumption expenditure for urban 1H 2016, with Legoland Discovery Center household also decelerated to 5.8% and opening in Shanghai’s Parkside Plaza 5.3%, respectively. and a Sega Joypolis store opening in Shanghai’s Global Harbor mall. To attract footfall, a number of landlords adjusted the tenant mix in their shopping The rapid development of online malls by allocating more space to food shopping continues to pose a challenge and beverage operators and leisure for traditional bricks-and-mortar retailers. retailers. As these retailers have lower Online retail sales in 1H 2016 rose 10.3% rental affordability, five out of the seven Y-o-Y to RMB2.68 trillion, accounting major Mainland cities covered in this for 17.2% of total retail sales in China. A report recorded rental declines during 1H number of major retailers launched online 2016. Lower rents stimulated demand, stores during the period. For instance, Mid-range resulting in stable vacancy rates in camera retailer Leica opened an online retailers have the cities, despite increased new retail store on Tmall.com, while British fashion supply. brand Three Floor entered the China become the major market by selling through Xiu.com, a local demand driver Mid-range retailers have become the fashion e-commerce website, instead of major demand driver as a result of the setting up a physical store. On the other due to slower government’s anti-corruption policies and hand, more online retailers have adopted economic growth. slower economic growth. Fast-fashion the Online-to-Offline (O2O) model. For retailers, in particular, were the most instance, China’s major online bookseller active in seeking prime retail space for Dangdang announced that it plans to expansion. For instance, lingerie brand open 1,000 physical bookstores across China in the next three years. Looking forward, competition from TABLE 1 online retail, the ongoing anti-corruption China’s economic indicators campaign and Chinese buyers’ increasing overseas purchases will remain major Latest Year-on-year Period challenges in the retail market, especially reading growth for high-end retailers, while fast-fashion GDP (RMB trillion) 1H2016 34.1 +6.7% and other mid-range retailers are expected to continue entering or expanding in Population (billion) 2015 1.4 +0.5% China. Retail supply will be abundant +1 percentage Registered urban unemployment rate 1H2016 5.2% in the coming year, particularly in non- point core and emerging districts, such as the Real-estate investment (RMB trillion) 1H2016 4.7 +6.1% Changping and Tongzhou districts in Beijing and the Longhua and Longgang Retail sales value (RMB trillion) 1H2016 15.6 +10.3% districts in Shenzhen, which is expected Per-capita disposable income of urban to put downward pressure on retail rents. 1H2016 16,957 +5.8% households (RMB) As a number of theme parks will be built in China in the coming years, which will Per-capita consumption expenditure 1H2016 11,185 +5.3% of urban households (RMB) lend support to tourism and thus the retail market, the long-term outlook for China’s Source: National Bureau of Statistics of China / Knight Frank Research retail market remains cautiously optimistic. 2 Holdways.com 1H 2016 CHINA RETAIL PROPERTY MARKET WATCH RESEARCH CHART 1 KEY FINDINGS China retail sales value and per-capita consumption expenditure of urban households Per-capita consumer spending (RMB) Retail sales value (RMB trillion) In 1H 2016, the total value of 25,000 30 retail sales in China reached Retail sales value Per-capita consumption expenditure of urban households 25 RMB15.6 trillion and the per- 20,000 capita consumption expenditure 20 of urban households was 15,000 RMB11,185 (Chart 1). 15 10,000 10 In 1H 2016, Shanghai recorded 5,000 the highest retail sales value 5 among China’s major cities, 0 followed by Beijing. Meanwhile, 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1H2016 retail sales in Chengdu grew at Source: National Bureau of Statistics of China / Chinese Academy of Social Sciences / Knight Frank Research the fastest pace (13.7% Y-o-Y), followed by Hangzhou (12.9%) and Guangzhou (10.6%) (Chart CHART 2 Retail sales values in 1H 2016 2). RMB billion 600 In 1H 2016, Beijing continued (8.6%) (3.8%) to have the largest amount 500 of prime shopping centre (10.6%) 400 stock among the seven major Chinese cities, with a total of 300 (8.8%) (13.7%) (7.3%) (12.9%) 10.8 million sqm. 200 The average amount of stock in first-tier cities (ie Beijing, 100 Shanghai, Guangzhou and 0 Shenzhen) reached 8.2 million Beijing Shanghai Guangzhou Shenzhen Tianjin Hangzhou Chengdu sqm and in second-tier cities Source: National Bureau of Statistics of China / Knight Frank Research Note: Year-on-year changes in brackets (ie Hangzhou, Tianjin and Chengdu) 3.4 million sqm (Chart 3). CHART 3 Existing stock of prime shopping centres in 1H 2016 Million sq m 12 10 8 6 4 2 0 Beijing Shanghai Guangzhou Shenzhen Tianjin Hangzhou Chengdu Source: Holdways / Knight Frank Research KnightFrank.com.cn 3 CHART 4 KEY FINDINGS Vacancy rates of prime shopping centres in 1H 2016 18 In 1H 2016, Hangzhou and 16 Chengdu had the lowest and highest vacancy rates, 14 respectively, in high-end 12 shopping centres among 10 China’s seven major cities. The average vacancy rate in 8 China’s first-tier cities was 6 5.8% – 3.8 percentage points lower than that of second-tier 4 cities (Chart 4). 2 0 Among China’s seven major Beijing Shanghai Guangzhou Shenzhen Tianjin Hangzhou Chengdu cities, Shanghai remained the Source: Holdways / Knight Frank Research most expensive city in which to lease prime shopping centre space. The average monthly CHART 5 rent in first-tier cities was Monthly rents of first floors of prime shopping centres in 1H 2016 RMB1,547 per sqm – 57% RMB per sq m per month (leasable) higher than the average rent of 2,000 RMB985 per sqm in second-tier cities (Chart 5). 1,500 Retail rents are expected to drop or remain stable in major Chinese cities, given abundant 1,000 supply (Table 2). 500 0 Beijing Shanghai Guangzhou Shenzhen Tianjin Hangzhou Chengdu Source: Holdways / Knight Frank Research TABLE 2 Outlook for retail property prices and rents in major Mainland cities Beijing Shanghai Guangzhou Shenzhen Tianjin Hangzhou Chengdu Retail property prices Retail property rents 4 Holdways.com 1H 2016 CHINA RETAIL PROPERTY MARKET WATCH RESEARCH TABLE 3 KEY FINDINGS Outlook for the retail markets in major Mainland cities City Outlook Five new shopping malls are expected to be launched in 2H 2016, most of Beijing Plenty of new shopping malls which are in suburbs like the Fengtai and Changping districts. are scheduled to open in both Four to five shopping malls will be launched in the third quarter of 2016, Shanghai core and non-core areas of providing about 400,000-500,000 sqm of space, a sharp increase in new supply. major cities (Table 3). K11 and Tian Hui Plaza, located in Pearl River City, are likely to be launched in Guangzhou 2H 2016, providing 150,000 sqm of new supply. We remain cautiously optimistic Despite a significant amount of new supply in the Futian, Nanshan, Bao’an, about China’s retail market Shenzhen Longgang and Pingshan districts, rents are expected to remain stable thanks to Shenzhen’s steady economic growth. (Table 4). Tianjin will have nine new shopping malls in 2H 2016, such as Teemall, In City Tianjin and other major projects, adding about 700,000 sqm of retail space to the market. In the coming year, new shopping centres to be launched in core areas are Hangzhou expected to put downward pressure on rents and push up vacancy rates. In 2H 2016, a number of existing projects in Chengdu will undergo Chengdu repositioning, upgrades or tenant mix adjustments. Prime retail rents are expected to fall amid fierce competition among landlords. TABLE 4 Major retail areas in major Mainland cities City Major shopping streets Major retail areas ¡ Wangfujing Avenue ¡ Wangfujing Beijing ¡ Qianmen Avenue ¡ CBD and vicinity ¡ Xidan Avenue ¡ Haidian Zhongguancun ¡ Nanjing East Road ¡ Xujiahui Shanghai ¡ Nanjing West Road ¡ Lujiazui ¡ Huaihai Road Middle ¡ Shangxiajiu Road ¡ Tianhe CBD Guangzhou ¡ Beijing Road ¡ Pearl River New City ¡ Tianhe Road ¡ Huaqiang North Road ¡ Luohu Commercial City Shenzhen ¡ Dongmen Road ¡ Futian CBD ¡ Nanjing Road ¡ Nanshi Tianjin ¡ Binjiang Road ¡ Xiaobailou Area ¡ Heping Road ¡ Wulin Business District ¡ Yan’an Road Hangzhou ¡ Huanglong Business District ¡ Hubin Road ¡ Qingchun Business District ¡ Tianfu New City ¡ Chunxi Road Chengdu ¡ Luomashi ¡ Hongxing Road ¡ Yanshikou KnightFrank.com.cn 5 MAP 1 ABOUT Seven major cities in Mainland China Holdways Beijing Holdways Information & Technology Co Ltd (Holdways), founded by the China National Real Estate Development Group Corporation, is one of China’s first property information and consultancy service providers. With its comprehensive property and finance databases, strong market research and analysis as well as qualified and experienced professional staff, Holdways provides real-estate intelligence, market research, competitor analysis and strategic consultancy services for both domestic and international companies.