Shanghai, August 30, 2021 — Cushman & Wakefield, a leading global real estate services firm, recently released its report China Retail Supply/Demand 2021 External Link. According to the report, China‘s economy remained in positive growth territory in the first half of 2021, with a number of major macroeconomic indicators maintaining growth. Influenced by China’s positive economic fundamentals, by Q2 2021, the total stock of all mid- to high-end shopping centres in the 16 major cities in China that we track reached 88.96 million sq m, an increase of 2% q-o-q. The average rental for prime retail properties in major cities in China was RMB755.6 per sq m per month, increasing by 0.4% q-o-q. What’s more, according to statistics from Cushman & Wakefield, about 22.59 million sq m of new supply is planned to enter the market in the second half of 2021 and into 2022. Although the amount of new supply entering the market will exacerbate retail property competition in the market, China's retail property market is and will continue to be a popular investment destination for investors, developers and retailers, given the measures from the central and local governments to stimulate consumption, the rise of China's ‘new consumption,’ and the continuous improvement in the shopping centre consumer shopping experience and shopping centre energy and natural resource usage sustainability.
Shaun Brodie, Head of Occupier Research, Greater China at Cushman & Wakefield, said: “The COVID-19 epidemic has brought many changes to retailing in China. On the one hand, health and safety measure levels at both physical bricks and mortar stores and shopping centre have been stepped up. On the other hand, the number of people shopping online has further increased. Looking at the longer term, not only will retailers and shopping centre operators look to continually raise the level of sales at their bricks and mortar store locations by various innovative means, but given the greater awareness of environmental sustainability, many will also examine the many ways they can make their physical properties greener.”
The supply/demand rundown for 16 city core area-level markets in China (Q2 2021)
Source: Cushman & Wakefield Research
According to the forecast from the China Research Institute of Reform and Development, during the 14th Five-Year Plan period, China will become the largest commodity consumption market in the world. The Chinese retail market has also become increasingly sophisticated. In order to meet the increasingly personalised and diversified needs of Chinese consumers, brands will have to continue to explore new market segments and innovate new business models.
In terms of demand, both shopping centre owners and retailers need to be aware of a number of retail market influencing factors and trends, including:
- The package of consumption stimulating policies;
- Chinese luxury market spending;
- Collection stores;
- The cosmetics market, and;
- Experience stores…
…which should continue to drive market dynamism in China into the mid- to long term.
Duke Zhen, Head of Retail Services, China at Cushman & Wakefield, said: “Through government action and support, consumption in China quickly bounced back in 2020 and in the early period of 2021. This market movement has undoubtedly been positive for both retailers and shopping centre owners in the region. Ahead, to drive further customer footfall traffic, we expect both retail shops and shopping centres to continually push the boundaries to improve the customer shopping experience.”
By the end of H1 2021, the total stock of Beijing's retail market was 14.6 million sq m, of which 12.8 million sq m consisted of shopping centres, accounting for 87.3% of total stock.
Although COVID-19 has brought pressure to Beijing‘s retail market, the market has continued to recover since the third quarter of last year. Rents in the core submarkets remained stable, and vacancy dropped slightly. As of the first half of 2021, the average asking rental for the ground floor of the benchmark projects in the city’s core submarkets was RMB2,400 per sq m per month, and the overall vacancy rate was 10.5%.
In the short term, the pace of new supply in the Beijing retail market will remain relatively slow. It is expected that in the next two years, about 2.3 million sq m of quality retail space will be available in the Beijing retail market, with suburban areas still being the main area of supply.
Shanghai‘s economic fundamentals remained positive with the overall macro-economic indicators maintaining growth during the H1 2020-H1 2021 period. In response to the economic growth, nine new shopping centres entered the Shanghai retail property market within the past year, prompting total stock to increase to approximately 19.2 million sq m.
By the end of Q2 2021, the overall vacancy rate for Shanghai’s mid- to high-end shopping centres decreased to 9.25%, down 0.12 ppts q-o-q. The average first floor rent of high-quality retail properties in Shanghai rose 1.47% q-o-q to RMB879.6 per sq m per month.
Shanghai’s prime retail property market will continue to upgrade in the next few years as a result of more precise and high-quality market positioning of new and refurbished shopping centres, more modern architectural design and a more diversified brand mix. In turn, these elements and other macro-economic and social factors will continue to place Shanghai as one of the most important locations in China for retailers to set up shop.
Shenzhen added 312,000 sq m of new prime retail supply during the past year. The total stock increased to 5.10 million sq m, up 6.5% y-o-y.
Impacted by the epidemic, the average rental hit a 10-year low in Q3 2020. However, with the support of city government stimulus measures to boost consumer spending, as well as the executed tight epidemic prevention action, the retail market continued to recover. In Q2 2021, the overall vacancy rate dropped 1.77 ppts from a high in Q3 2020 to finish at 6.1%. Subsequently, the average monthly rental gradually returned to the pre-epidemic level, registering RMB880.48 per sq m, up 7.4% y-o-y.
Meanwhile, postponed project openings have pushed up new retail supply scheduled for delivery for 2021 to approximately 1 million sq m. Notable pipeline properties include Qianhai the MixC, Wanda Plaza 4.0 and Sungang Baoneng Global – all viewed as milestone projects in the growth of the city’s emerging retail submarkets.
In the past year, a total of 1,019,500 sq m of new supply was added to the Guangzhou prime retail market, achieving a historical peak and pushing the city prime retail stock up to 4.75 million sq m, up 27.4% y-o-y.
The strong resilience of the Guangzhou retail market and active rental demand caused the citywide vacancy rate to fall 1.3 ppts y-o-y to 4.5%, a five-year low. At the same time, thanks to the normalisation of epidemic prevention measures and increased customer footfall traffic, the overall average rental inched up 0.2% y-o-y to reach RMB722.7 per sq m per month.
Approximately 399,000 sq m of new prime retail supply is scheduled to enter the market in the second half of the year, with more than half of the new supply slated for the non-core submarkets. Ahead, the growing commercial environment in the city’s emerging submarkets is expected to spur the release of consumer demand.
New projects added 410,239 sq m of prime retail shopping centre space between Q3 2020 and Q2 2021. Consequently, Chengdu’s retail market reached approximately 7.15 million sq m, of which over 1.1 million sq m is located in the CBD and the Financial City submarkets.
The COVID-19 epidemic has largely been brought under control in Chengdu, which has resulted in a continual recovery in the city’s retail market. With customer footfall traffic returning, rental has risen steadily over the recent past. In Q2 2021, the average rental in the city increased by 1.12% y-o-y to reach RMB630.65 per sq m per month.
Additionally, the city government has encouraged consumption with actions and policies and these measures have continued to attract new retailers to the city. As a result of this demand, Chengdu’s vacancy rate decreased by 1.39 ppts y-o-y to 6.58%.
According to forecasts, Chengdu's retail market is set to receive approximately 670,000 sq m of new retail supply through the rest of this year, of which, the Panchenggang submarket will account for more than half.
During the last year, despite the complex external economic environment and the COVID-19 virus outbreak, Hangzhou’s overall economy has seen a stable and favourable development trend, thanks to continual government action and market policies to stimulate the economy.
The steady recovery of the city’s economy has provided a good business environment for the development of the retail market. In the last year, eight commercial projects, with a combined area of 470,000 sq m of new retail space, opened in Hangzhou. Consequently, the city’s quality retail stock climbed to approximately 4.6 million sq m at the end of Q2 2021.
Moving forward, the challenges of oversupply in the retail market are likely to remain, while transition within the industry will continue to accelerate. Those retail businesses able to satisfy consumers’ experience expectations, and which can gain from policy support, can fully integrate the latest smart retail technology, and have the necessary professional business operation capability, will gain competitive advantage and will win more business opportunities.
For more details, please click here to download the report External Link.