Shanghai

KUALA LUMPUR (Aug 13): Shopping malls in Mainland China’s major cities saw average vacancies drop in 1H2015 as landlords cut rents to entice quality tenants in a more crowded market, according to the recently-published China Retail Property Market Watch First Half 2015 by Knight Frank.

The report said average vacancies in seven major cities – namely Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Hangzhou, and Chengdu – dropped 1.3 percentage points to 6.5%, propped up by higher occupancies in five of these cities, while total stock of prime shopping centres grew 9.8% year-on-year to reach 39.5 million sq m during 1H2015.

“The average vacancy rate in China’s first-tier cities reached 6.5%, which is 1.8 percentage point lower than that of second-tier cities,” said the report.

The strong take-up was due to the lowering of rents by some shopping centre landlords to attract quality tenants, it said.

“To lure customers back to shopping centres, a number of landlords also adjusted their tenant mix to introduce food and beverage and experimental retailers, whose rental affordability is relatively low,” it added.

Rents, as a result, decreased slightly in certain cities during 1H2015, said Knight Frank.

Hangzhou’s high-end shopping centres continued to have the lowest vacancy rate among the seven major cities while Chengdu has the highest vacancy rate.

According to the report, Shanghai remained the most expensive city to lease prime shopping centre space, where the average monthly rent in first-tier cities reached RMB1,551 per sqm, which is 49.3% higher than the average RMB1,039 per sqm in second-tier cities.

Mid-tiers retailers continued to expand, although luxury brands remained cautious amid the continuous implementation of anti-corruption policies in China.

“While international fast-fashion giants such as Zara, H&M and Uniqlo have been actively seeking prime retail space for expansion, new brands have also been entering the Mainland market such as SuperGroup, the British company that carries Superdry fashion brand, reportedly signed a joint venture with Trendy International Group — a casual fashion company backed by LVMH, to open stories in China,” said the report.

Knight Frank remained cautiously optimistic on the outlook of China’s retail market for the second half of the year, given that the recent volatility in the Chinese stock market could drag down purchasing sentiment in the short term.

“However, we believe that the Mainland government will put effort into stimulating the retail sector, to transform the economy from being investment-fuelled to being consumption-driven,” the report said.

China is expected to welcome more retail supply that is already in the pipeline, said the report.

“First-tier cities, which are now largely saturated following rapid development in previous years, will witness slower take-up of retail space from major retailers, which fast-fashion and other mid-priced retailers are expected to continue entering and expanding in second-tier cities,” said the report.

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