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Experts worried over too many mega malls
By Cherry Cao

CHINESE mainland real estate developers' unabating interest in building very large shopping centers across the country is causing growing concerns among industry experts, a new industry report has found.

Meanwhile, fashion and food and beverage retailers remain the most aggressive in expanding as they aim to take advantage of the country's fast-growing middle class, global property adviser Knight Frank said in its second edition of an in-depth research paper on China's retail market.

Around 50 shopping centers over 50,000 square meters opened during the 12 months ending June in 11 major Chinese cities, with 27 of them 100,000 square meters and above. Twenty-one of the 27 developments are built by Chinese mainland based developers, mostly in tier-2 cities such as Tianjin Municipality, Shenyang in Liaoning Province and Chengdu in Sichuan Province. Developments were mainly facilitated by pro-active municipal governments and lower land costs compared with tier-1 cities, the report said.

"The continuing trend among Chinese mainland developers to build mega malls has become a rather clearer concern to us," said Paul Hart, executive director at Knight Frank. "In our view, shopping centers larger than 100,000 square meters need to have exceptional accessibility from multiple modes of transport. However, many of the centers in tier-2 cities are remote from major transport hubs."

Surprisingly in contrast, the average size of retail centers built by Hong Kong domiciled developers is on average around half the size of the larger local players, according to Knight Frank, which tracks around 500 shopping centers larger than 10,000 square meters in selected Chinese cities.

Mass market international retailers, in particular fashion and F&B operators, continue to take advantage of the country's ever-expanding middle class and have very aggressive growth rates as economic growth in Europe and the US has continued to stall, the research also found.

Fast fashion brands such as H&M, Zara and Uniqlo have increased their numbers of shops by more than 60 percent annually so far this year. Gap, for instance, is aiming to open about 20 new stores in the second half of 2012, a rate equivalent to almost one new store per week. Uniqlo, at the same time, says it plans to add one new store every three to four days. In the F&B sector, Starbucks and Burger King both aim to open one new store every one to two days over the next five years.

Despite concerns on overbuilding of retail center as well as the uncertainties associated with the growth of online sales, prime retail rents in China's mainland continue to perform well, the report concluded.

In the first half of 2012, average prime rents in tier-2 cities rose 10 percent to 865 yuan (US$137) per square meter from 2011, while tier-1 cities saw an 8 percent growth in the same period, an indication that well-placed retail is still very much in demand.

In terms of overall vacancy rates, the average level for prime shopping centers in tier-1 cities stood at 8.4 percent compared with 10.5 percent for tier-2 cities. Vacancy levels have in general remained fairly steady, although they have edged up in cities with significant new supply, such as Shenyang, Chengdu and Guangzhou in Guangdong Province.

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