While China’s ongoing luxury market slowdown has hit sales in the country’s shopping centers this year, a new report by real estate investment firm CBRE argues that China’s rapidly growing middle class is set to propel significant retail expansion over the next 10 years.
Entitled “The New Age of the Asia Pacific Retail Market,” the report notes that luxury retailers have felt the impact of China’s ongoing anti-corruption campaign that remained strong in 2014. Over the course of 2015, “China, Hong Kong, and Singapore will stay relatively quiet due to softening domestic consumption, in addition to Chinese shoppers’ weaker appetite for luxury goods,” says Jonathan Hsu, the CBRE Resarch’s Asia-Pacific director. Meanwhile, weak performance of malls in suburban areas has pushed retail rents downward.
Nonetheless, it notes that market entrance activity for luxury retailers has remained strong in Hong Kong as well as second-tier cities in China over the past two years. China saw the largest volume of new retail space in the Asia-Pacific region over the past year and still is projected to see an even larger amount of growth in 2015. By the end of 2015, this will help contribute to a total of 220 million square feet of newly constructed shopping center space in Asia. The mainland cities of Chengdu, Beijing, Shenzhen, and Changsha are listed as the top cities in the Asia-Pacific region for new retail space in the pipeline for late 2014 and 2015.
China’s expanding middle class and urbanization will remain major drivers of retail expansion in the coming years, according to the report, which argues that rising incomes will increase demand for discretionary items including cars, apparel, fashion accessories, and electronics. The report notes that the entire Asia-Pacific middle class will expand to over 1.7 billion people in 2020 from 525 million in 2009, with China among the top 10 global markets for retail consumption demand. The growth rate of the Asia-Pacific middle class has eclipsed that of Europe and the Americas over the past decade, and is expected to continue to remain higher than these regions over the next 10 years. Urban areas are key to this growth: in 2013, China saw an urbanization rate of 53.2 percent, and is expected to see one of 60 percent by 2020.
The report finds that Hong Kong, Beijing, and Shanghai are the current top three target cities for new retail market entrants in China, following Tokyo in second, third, and fourth for the entire Asia-Pacific region. Meanwhile, second-tier mainland city Hangzhou isn’t far behind in ninth place. Chinese travelers are driving regional growth as well: the report attributes relatively high rankings for Taipei (fifth) and Seoul (seventh) to Chinese tourist arrivals to these cities.