Fieldwork research is showing major differences between core and non-core retail markets across China. To examine and quantify this more closely, I conducted a survey of local analysts responsible for 28 of the cities in our regular coverage across China.
Retail supply delays are a normal feature of every market in China. At any given time, approximately 35% of retail supply due in the next 12-month period will be delayed. The survey results confirmed that in centrally located malls, permit-related delays and construction schedules are the most common causes. In contrast, slow leasing progress is the most commonly reason in non-core locations. Even so, only about 10 retail projects in our national coverage can be said to be idle properties that completed construction some time ago but are not yet open to the public. Out of the nearly one thousand properties covered, this is a tiny number.
Cities with new core-area shopping centres frequently reported pre-commitment rates over 70% and full occupancy within one year of opening. Meanwhile, non-core locations are not only reporting lower pre-commitment rates, but are taking up to two years just to reach full occupancy. In addition, there is typically a stabilisation or incubation period that can extend a further one to two years as the tenant mix and positioning are adjusted to the demands of the market.
What is wrong with non-core areas?
It has very little to do with retailer expansion slowing down. While much has been made of the luxury slowdown, and indeed openings of top-tier luxury stores slowed or stopped in most cities; this issue affects only a select group of downtown centres. Mainstream retailers are still expanding aggressively: Uniqlo, H&M, Burger King, Starbucks, The Grandma’s, Innisfree, Cafe Benne were the top expanders identified by the survey. Some of the world’s largest fashion brands are still as keen as ever to tap the full potential of China’s retail markets. Also the cities surveyed unanimously reported strong expansion in F&B and entertainment. However, expanding national and international brands must now choose from among a much larger number of new centres than ever before, and simply cannot enter all of them. Inevitably some centres are less attractive than others in light of the competition. Retailers are more careful, exercising rising levels of diligence in the site selection process. Often, new and emerging areas are too immature and do not have sufficient residential populations in their catchment. Nearly every analyst surveyed expected their “new CBD” areas to take another 4-8 years to become significant retail markets.
In response, landlords of shopping centres in non-core areas are offering increasingly generous terms to attract tenants and push up occupancy levels. 13 cities reported examples of non-core area properties offering more than just pure turnover rent for major tenants, to include other incentives such as significant rent free periods and fit-out contributions. Tenants can enjoy significant bargaining power in this environment. In contrast, mature core properties continue to have strong pricing power.
More on 'Retail' in 'China'
- The rise of China’s PropTech marketMarch 13, 2024
- F&B supported China’s 1H23 retail & cold storage marketsOctober 17, 2023
- Experiential retail’s increasing demand in Beijing marketSeptember 28, 2023
- What’s the latest story of Chinese firms going overseas?August 29, 2023
- Sportswear brands demand more retail space in ShanghaiJune 27, 2023
