Shanghai, Beijing and Hangzhou are the three cities in the Chinese mainland that offer the brightest prospects for retail real estate investors, CBRE, the world’s largest commercial property services provider, said in its latest report.
Investors are advised to exercise caution when considering opportunities in some second-tier cities such as Shenyang and Wuxi, where supply has outnumbered demand, said the report, which analyzed 14 key indicators that influence the retail property market performance in 17 cities.
Shanghai’s retail property market exhibits both strong supply and demand. Retail rents in the city have been increasing at a steady pace, with rents in central areas rising at a compound annual growth rate of about 7.9 percent and vacancy rates remaining well below 10 percent.
The country’s leading real estate market, Shanghai has long been popular among retail property investors. En-bloc transactions (deals valued above US$10 million) in retail properties totaled some 34.5 billion yuan (US$5.6 billion) between 2005 and 2013 in Shanghai. That accounted for one third of the nation’s retail en-bloc transaction volume during the same period, CBRE data showed.
Non-core commercial hubs in Shanghai have been developing rapidly and will probably continue to grow at an even faster rate. Between 2010 and 2013 these non-core areas jumped by 67.1 percent, more than three times as fast as the growth rate for the core retail areas in the city. Meanwhile, vacancy rates in these non-core areas dropped from 15 percent at the start of 2010 to 11.3 percent by end of 2013.
Beijing likewise holds significant potential for retail property investors. The capital city ranks highest in the nation in terms of overall retail consumption, with spending on high-end goods accounting for a considerable proportion. Additionally, the retail stock in Beijing is relatively dispersed, with only 20 percent located in central precincts such as Xidan, Wangfujing and CBD areas, and the remaining 80 percent scattered across a range of sub-markets. With land in short supply within the city’s Fifth Ring Road and new regulations prohibiting the construction of large-scale public projects in core areas, Beijing’s retail market is expected to see a decentralizing trend.
Beijing remains attractive for international retailers, who are entering the city market at a faster speed. In 2013 alone, 34 new international brands entered Beijing, more than three times the number for 2012.
Tight supply is the most salient feature of the Hangzhou market. The city has a relatively small stock of retail space and very low vacancy rates.
As of Q2 2014, the supply of high-quality retail properties in the city totaled only 1 million square meters and the vacancy rate was 1.7 percent, both lowest among cities monitored by CBRE.
Unsurprisingly, that helped drive rents quickly upward. CBRE data showed that between Q2 2011 and Q2 2014, rents for ground-floor space in high-quality properties rose by 20.9 percent, much higher than both the 8.7 percent average increase for second-tier cities and the 9.5 percent jump in the national index for the same period.