Retail sector in the new CBDs of Western China – success will take time

February 18, 2014 / By  

With urbanisation an ongoing trend, key cities in western China drew up master plans for new CBDs, such as the Financial City in Chengdu, Chenggong District in Kunming and City North in Xi’an. The expanding urban area brings with it a huge supply of new retail space. As a result we see that much of the forthcoming retail supply in these cities is located in these new districts. To facilitate faster development of the new CBDs, municipal governments have invested significantly in infrastructure, such as expressways and new metro lines. They also offer incentives, such as profit tax reductions and exemptions, to encourage companies to invest there. Thus far, the new CBDs are typically home to municipal government offices and many of the provincial headquarters of state-owned enterprises (SOEs).

These key cities are provincial capitals and serve as the major centre of economic activity for their province, they also typically offer the best education and healthcare resources in their region as well as relatively abundant job opportunities. As a result, the cities tend to absorb affluent households and talented youngsters from lower tier cities in the provinces. These new migrants help sustain the expanding economy and retail sector of the cities over time.

One key challenge for the retail sector in new CBDs, currently, is that the residential developments are rarely fully occupied upon completion. The residential projects would have been completely sold during the pre-sale process and in many cases completed construction, but owners are not necessarily in a rush to relocate to these new apartments while the public transport links are still under construction and while their jobs may be closer to where they currently live. Therefore, some malls in the new CBDs may face a challenging environment in the short run as their surrounding population is small at the moment. The retailing environment will find trading in some day-parts a challenge, particularly weekday evenings. However, I think this is a short-term phenomenon and over time the residential developments will become vibrant communities, full of people, which will make for healthy and vital retail markets.

In short, owing to ongoing urbanisation as well as preferential policies, I do hold a positive view on the long-term development of new CBDs in these cities albeit some malls in these sub-markets may face a hard time in their initial operation. I believe the retail sector in the new districts will surely benefit as the business environment matures and residential communities emerge.

Notify of

Inline Feedbacks
View all comments

Talk to us 
about real estate markets.