China's Luxury Malls Still Struggle With High Vacancy Rates

New Shopping Space In Shenyang, Wuhan, Chengdu Skyrockets With shopping center construction slowing in saturated top-tier cities, second-tier Chinese cities continue to present opportunities for domestic and international property developers. With a consumer base less likely to jet off to Europe or even Hong Kong to do their high-end shopping, consumers in inland China have shown a greater propensity for local consumption, flocking to super-sized malls packed with everything from grocery stores to IMAX theaters. In the hopes of tapping the growing middle class in inland second- and third-tier cities throughout China, developers have built at least 20 million square meters worth of shopping centers in 14 major cities over the past 10 years, according to data released this summer by the CBRE group, with a further 15 million square meters currently under construction. However, the space itself is only one side of the story. Occupancy is another altogether. As a new study by CBRE notes, though mall-building activity may be at fever pitch in second-tier cities, vacancy rates remain stubbornly high. Currently, Tianjin has 2.45 million square feet of mall space under construction, while Shenyang has 2.17 million. Yet Shenyang, widely considered one of China's most active luxury markets, also has the country's highest retail vacancy rates, which sat at a stubbornly high 17 percent in the first half of 2012. Chengdu and Tianjin aren't far behind, with rates at a respective 16.2 percent and 10.8 percent. On average, vacancy rates in second-tier cities sits around 10.5 percent, compared to 8.4 percent in Shanghai. As international property consultancy Knight Frank recently wrote of China's retail vacancy issue, "Building shopping space that fits consumer demand has always been a problem, and many retailers still deal with finding high-quality mall space. In top-tier cities like Shanghai, there are lots of options, but in second-tier cities there might only be one or two good options." According to retail expert Yang Hui, part of the issue is that developers continue to build malls in less-than-ideal locations, which ultimately fail to entice major brands and consumers alike. Yet construction continues to plow ahead. According to a CBRE report released this summer, Shenyang, Wuhan and Chengdu ranked in the top 10 cities with the most shopping space, out of 180 major urban centers around the world. As Guo Zengli, president of the China Shopping Center Development Association, told China Daily, "China had 2,812 shopping centers over 10,000 square meters in 41 cities we covered at the end of 2011. And the compound growth rate for the amount of shopping space in China is 25 percent over the past 10 years." Added Guo, "Overseas commercial developers and retailers are doing better than local ones, who are mostly real estate developers that are being limited by the government's clampdown on the country's housing market." Among the international developers that have benefited from this construction boom have been Singapore's CapitaMalls Asia, which has built 58 malls in 36 Chinese cities since 2003, as well as Taubman Asia, the local subsidiary of US-based Taubman Centers Inc. Recently, Taubman announced a joint venture with Beijing Wangfujing Department Store (Group) Co Ltd to construct and manage an upcoming shopping center in Xi'an. Next year, the Parisian retail mainstay Galeries Lafayette -- a mecca of sorts for outbound Chinese tourists -- will make its second foray into China (following its abortive 1998 entry attempt), opening a location in Beijing with plans to open a further 15 throughout China over the next five years. First announced in 2010, and further elaborated upon last summer, the new Galeries Lafayette Beijing is slated to open on September 1, 2013 in Beijing’s Xidan district, a partnership with the Hong Kong fashion retail powerhouse I.T.

China's Luxury Malls Still Struggle With High Vacancy Rates

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Published November 28, 2012

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China's Luxury Malls Still Struggle With High Vacancy Rates