Retail delays have become a ‘new normal’ in Beijing, but the situation isn’t actually as alarming as it sounds. By postponing new mall openings, landlords are better able to plan and prepare to drive a more successful outcome when their projects finally enter the market.
Following an examination of recent retail delays in the city, we see that delays have become increasingly lengthier by the year: from an annual market average of less than a year since 2014 to an estimated annual market average of up to nearly three years by 2021.
Figure 1: Beijing Malls See Longer Delays
Source: JLL Research
Slow leasing progress has been the main culprit for retail delays in recent years. Inexperienced landlords have typically targeted a higher positioning in the market than suitable for their projects, resulting in slow leasing progress. There have also been cases of ownership or land-use disputes, which have stalled both construction and leasing. Retail projects in emerging areas, including policy-driven submarkets such as Tongzhou and Lize, have also been subject to leasing delays, as initial opening dates have been misjudged ahead of demand.
Postponed openings have led to bigger splashes
While lengthier delays sound scary, the opposite has shown to be true as the majority of postponed projects have benefited from greater market potential after entering as strong rather than weak projects such as Han’s Plaza. After several delays, Han’s Plaza revamped its entire leasing strategy – when finally opening, it benefited from an 85% physical occupancy rate, with 70% of its tenants entering suburban Yizhuang for the first time. The mall also introduced the first Beijing stores for market-movers such as domestic home accessories brand Nome and JD.com’s 7Fresh new retail supermarket.
The increase in the number of delayed projects have also had a wider market impact, helping to ease overall supply pressures, especially in recent years when huge amounts of supply entered the market, particularly in suburban areas. In most cases where high commitment rates and a strong tenant mix were prioritised over earlier opening dates, projects have opened late, but with high occupancy. This change in strategy has enabled landlords – even of notoriously delayed projects – to make a bigger splash when entering the market, and perhaps more critically, allowed malls to fill up and stabilise quickly. This has led to stronger performance in the market relative to their rushed counterparts. In more extreme cases, projects that have entered prematurely remain highly vacant years later, still struggling to recover a position in the market.
The right timing may leave room for delays
Landlords must plan their entry strategies more carefully than before due to fiercely intense competition in an increasingly mature market. As a slower economy influences consumer behavior and online retail continues to gain momentum to compete for a larger proportion of retail sales, there is less room in the physical retail space for error. Delaying projects from entering the market should not be seen as a worrying signal, but rather a sign of increasing sophistication in the market. In fact, timing the right entry, if this includes delays, is contributing to a healthier overall retail market in Beijing.
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