Savills World Research Shanghai

Briefing Retail sector May 2015

Image: Shanghai New World Daimaru SUMMARY Rental growth remained subdued in the first quarter as vacancy rates increased for the fourth consecutive quarter.

 Retail sales for the first two and RMB16.7 per sq m per day months and Spring Festival slightly respectively. improved year-on-year (YoY). “The opening of the first  Shopping mall vacancy rates in upscale project along Nanjing ­ Shanghai New World Daimaru, prime retail locations increased 0.3 of located on Nanjing Road (E), added a percentage point (ppt) in Q1/2015 Road (E) is expected to 60,000 sq m of retail space to the to 4.4%. bring new momentum to market.  Both prime and non-prime areas the area’s rejuvenation” ­ First-floor shopping mall rents are witnessing an increasing pressure in both prime and non-prime retail as the city expects an influx of supply James Macdonald, Savills Research areas remained unchanged in in 2015. Q1/2015 at an average of RMB46.4

savills.com.cn/research 01 Briefing |Shanghai retail sector May 2015

Market commentary to be a divergence in performance of Nanjing Road (E) Retail sales performance improved different projects. Benchmark projects In the first quarter, Nanjing Road slightly in Q1/2015 compared to same in both prime and non-prime areas (E) saw the only new supply of the period last year, with the first two increased 0.1% QoQ, while other market. Shanghai New World Daimaru months recording nominal growth projects in non-prime areas continued launched its soft opening, adding rate of 8.1% YoY. During the Spring to record a decrease of 0.1% QoQ. 60,000 sq m of space to the retail Festival, sales of a sample of retail market. The project is developed companies increased 12.6% YoY, also However the softening of the market by Shanghai New World Group with higher than 2014 at 5.7%. brings more challenges to new Daimaru introduced for management. projects, as most will have to offer First floor tenants include luxury Service and entertainment sectors higher discounts to certain retailers to brands such as Gucci, Bottega were the main drivers of sales, with achieve an optimal tenant mix. Veneta and Van Cleef & Arpels, while jewellery and golden products also upper floors provide a wider range of contributing significantly due to the As overall rental growth tends to choices from sports clothing to trendy traditional hot season and depreciation continue to soften and less demand accessories. of gold price. However, considering is seen from retailers that take-up the slowing of the nation-wide large space as well as high rents, Shanghai New World Daimaru is the economy, significant improvement of rental growth could only be realised first upscale retail project along the physical retail market still has a long through more innovative endeavours. main street of Nanjing Road (E) and way to go. Aside from the stable contribution of one of only a few cases in the area F&B tenants, interior design is playing over the past decades with overseas Rents a more important role as customers operators involved. Aside from the Rental growth continued to be show an increasing appreciation for upmarket tenant mix, the retractable subdued, while tenant adjustment unique retail design as opposed to roof and spiral escalators are quite was quiet in Q1/2015. During the traditional retail layouts. This allows innovative and eye-catching among first quarter, overall rents remained landlord to embed more flexible units the cookie cutter shopping mall unchanged although there continues such as kiosks and floats which helps designs today. to generate higher total rental income. GRAPH 1 The project is located at the eastern Retail rental indices, Q1/2002–Q1/2015 Vacancy end of Pedestrian Street, which is also Overall vacancy rates in prime areas a key refurbishment/development area Prime benchmark Prime others Non-prime benchmark Non-prime others increased 0.3 of a ppt to 4.4%, a in the near future. Compared to the 320 fourth consecutive quarter increase. middle section of the road, the eastern 280 Four of the five prime areas recorded end has gradually set up a younger

240 an increase with only Nanjing Road and trendy image with Apple, Forever (E) decreasing 1.1 ppts. The majority 21, Gap and 6ixty 8ight already 200 of new vacant space is due to the opened. Pull & Bear and Chocolate 160 closure of previous fashion stores will soon unveil their first stores in Q1/2002 Q1/2002 = 100

120 that are rethinking brand strategy the area. Further east to the Bund, a at the end of their lease term. number of historical buildings are also 80 Despite continued expansion plans, under re-positioning or refurbishment. 40 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 increasing prevalence of the closure of Although the complexity of building 02 03 04 05 06 07 08 09 10 11 12 13 14 15 underperforming stores is expected. heritage and rights restrain potential Source: Savills Research renovation, the unique history of the Note: Benchmark means five to six market-leading projects based on a Non-prime areas showed a more area holds huge untapped potential. comprehensive assessment of reputation, management, design, business and developer experience. divergent performance. Vacancy rates in Hongqiao decreased 4.9 ppts as a Retailer number of retailers opened or began  D.I.G. GRAPH 2 fitting out in The Place and Arch Walk, Vacancy rates in prime areas, Q4/2014 while Sichuan Road (N) increased for vs. Q1/2015 the fifth consecutive quarter to 11.5% Q4/14 Q1/15 as many domestic brands closed their 14% stores or counters. D.I.G. is a supermarket brand

12% operated by Shanghai Waigaoqiao Both prime and non-prime areas International Trading Operation Center 10% are seeing increasing pressure as and has quickly opened over 10 stores 8% continuous new supply is expected since 2014 through self-management to launch into these areas or nearby or franchise. Store size ranges from 6% locations. On the other hand, while 1,500 to 4,000 sq m. Benefiting 4% Nanjing Road (E) is expected to from Waigaoqiao’s free trade zone

2% receive limited supply and therefore trading policy, the supermarket aims less competition, it will take longer to to provide imported goods by direct 0% Nanjing Road Nanjing Road Xujiahui Huaihai Road Lujiazui upgrade the image of the area and sales with value price. D.I.G. also (E) (W) (M) attract diversified retailers. plans to open in other cities. Source: Savills Research

02 Briefing |Shanghai retail sector May 2015

 Yuan  Nolboo  Yuyuto

Yuyuto opened two new stores in the first quarter at Chamtime Plaza Best known for its organic herb soap, The Korean restaurant opened its and The Place. Yuyuto is known for Yuan opened first store in Mainland first store in Shanghai in 2014 and is its diversified store strategy based China in Shenzhen in 2013. The expanding to more areas. In the first on different locations and consumer Taiwanese lifestyle brand will arrive in quarter, Nolboo was fitting out its new target. The Place will have Yuyuto Shanghai market in 2015 by opening stores in Joy City and Chamtime Plaza Mom’s Club while Chamtime Plaza will two stores at iapm and IFC Mall. with both expected to open in the see a snow world themed court with a second quarter. larger size of around 1,500 sq m. 

Project focus Shanghai Tower

 Shanghai Tower is a 632 m  The project is adjacent to two high skyscraper located in the of the most successful shopping financial hub of Little Lujiazui. The malls in Shanghai, IFC Mall and building is composed of office, Super Brand Mall. To differentiate hotel, retail and an observation itself, the landlord is expected to deck sections with 24 sky gardens bring a number of new retailers to scattered over the levels and direct the city. Meanwhile, art and cultural access to Metro Line 2 (Lujiazui elements are widely utilized in the Station). project to bring new experience to the consumers. Eslite Bookstore and  The retail section includes a Guanfu Museum will occupy more 60,000 sq m shopping mall (B2-4F) than one floor of the building. and a few more floors in different zones providing auxiliary facilities  Shanghai Tower is currently such as convenient stores and under leasing and is expected to beauty service. open in the second half of 2015.

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James Macdonald Siu Wing Chu Aileen Zhong Nicky Zhu Director, China Deputy Managing Director Senior Director Director +8621 6391 6688 +8621 6391 6688 +8621 6391 6688 +8621 6391 6688 [email protected] [email protected] [email protected] [email protected]

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