For brands planning their next wave of China store openings, several Chinese cities stand out among the pack as prime retail locales, according to a new report by real estate consulting firm CBRE.
The company’s new study, entitled “The Key to Investing in the China Retail Market,” looked at several key metrics to rank China’s cities based on retail potential and found that Shanghai, Beijing, Hangzhou, and Chengdu are China’s four most promising retail markets.
Shanghai’s top placement was due to its “increasing importance as an international financial hub as well as a burgeoning consumption market,” according to the report, which noted that the city ranks high among retail strength indicators including population, retail sales, disposable income per capita, consumption expenditure per capita, and visitor arrivals. The study notes that affordable luxury and fast fashion have been major growth drivers in Shanghai thanks to its growing middle-class population.
Beijing, meanwhile, is also a major focus for international retailers due to its large and growing population of affluent consumers with a love for luxury goods. Beijing residents spend 11 percent of their income on clothing—a rate higher than those from any other Chinese city. The city’s retailers were hit especially hard by China’s anti-corruption campaign with growth that slowed to 3 percent in January and February 2014, but the rate picked up again in March thanks to continued purchases by China’s wealthy.
Popular tourist destination Hangzhou is in major demand among retailers with the fastest-growing retail rent in China over the past decade at a rate of 12.3 percent. In 2014, only 1.7 of all retail properties have remained vacant, marking the lowest vacancy rate of all cities surveyed. Located in the affluent Zhejiang province, Hangzhou’s retail market has benefited from both local spenders as well as an influx of about 100 million tourists over the past year.
Also a popular tourist destination, the southwestern city of Chengdu is CBRE’s fourth-place rising star on China’s retail scene. The opening of shopping mall IFS in the first quarter of 2014 heralded a flood of luxury brands bringing their first store to the city, while the number of outlets for brands including Burberry, Gucci, Louis Vuitton, and Prada has exceeded that of larger cities Guangzhou and Shenzhen.
In addition to the top cities for retail growth, the report notes that retailers should also be keeping their eye on several key market trends in China that are having dramatic effects on the market landscape. The rising popularity of e-commerce is driving brands to take a “click-and-mortar” approach to sales by providing a seamless and integrated omni-channel experience to consumers. Meanwhile, tough competition means many shopping centers are embracing the idea of “lifestyle consumption” by featuring entertainment, exhibition, and events to attract more visitors.