Some observations from a recent trip to Nanjing revealed that the retail market is developing smoothly and there is currently no sign of oversupply. Compared to many Tier II cities, Nanjing is considered an advanced retail market. The following is an excerpt from the upcoming Nanjing retail report in the China Real Estate Intelligence Service (REIS).
- There is currently no sign of oversupply in the market.
- Commitment rates of upcoming projects for 2012 have already reached 60-75%.
- Once the anchors and sub-anchors are signed in new projects, little difficulty has been experienced finding inline tenants for the rest of the scheme.
- Among new projects, few are of the tall mega-Mall variety, instead we saw more of the medium sized format with 3 or 4 stories of retail, rather than 6 – 10 stories, limiting the potential for rapid drop off in foot traffic associated with taller projects.
- More malls have also begun to differentiate themselves by breaking away from the basic “box” style and incorporating distinctive design features and better F&B offerings.
- New decentralised precincts are also emerging in areas that, to date, have been underserved by retail.
New malls in Nanjing seem to be putting a priority on getting the food and beverage component right. In fact, new malls are inclined to lease more space to F&B tenants and entertainment due to the ready demand for food and beverage by the surrounding residents and workers. Some projects have taken their F&B focus a bit further and aim specifically at new entrants to the Nanjing market in order for their property to stand out. Fashion has been a bit more challenging to get “right” in terms of the right brands. For example, one recently opened mall in central Nanjing is nearly devoid of foot traffic except for the food and beverage section in the basement. In addition, malls are trying to differentiate themselves by use of a theme. The first to do this was Aqua City in 2008, with a water theme, and the latest is an upcoming shopping mall called the Forest Mall, which will have rooftop gardens, reflecting pools, and alfresco dining. An upcoming Hexi mall was rumored to be in the shape of a ship.
The newest luxury malls in Nanjing are still in the early phase of what we think of as the “retail lifecycle.” They are quiet but this is relatively normal. The luxury market is still dominated by a few department stores which enjoy destination status throughout the region. Many of the traditional department store customers are just beginning to discover the alternatives. In that sense the era of the department store is far from over. Downtown department stores are still trying to outdo one another, most recently by updating their exterior façades. As for shopping malls, upcoming developments understand that there is strong potential for mid-market retail, and they do not need to cling to a luxury positioning strategy.
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