Mar 09, 2012
China Retail Property Market Watch
2H 2011
2H 2011
market Highlights
China imposes restrictions on housing speculation, prompting investors to shift to the retail property sector.
Table 1
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China's economic indicators
Period GDP (RMB trillion) Population (billion) Registered urban unemployment rate Real estate investment (RMB trillion) Retail sales value (RMB trillion) Per-capita disposable income of urban households (RMB) Per-capita consumption expenditure of urban households (RMB)
Source: National Bureau of Statistics of China/ Knight Frank # Provisional
Latest reading 47.2 1.4 4.1% 6.2 18.1 21,810 15,161
Year-on-year growth +9.2%# +0.5% Unchanged +27.9% + 17.1% + 8.4% + 6.8%
2011 2011 End of 2011 2011 2011 2011 2011
In the second half of 2011, rental growth in high-end shopping centres ranged from 0.6% to 9.2%, based on seven major cities.
In the second half of 2011, the Chinese government tightened control on the residential property sector, imposing purchase restrictions in 46 first and second-tier cities. Meanwhile, developers were under increasing funding pressure after increases in the deposit reserve and base lending rates. Investors and developers, therefore, shifted to the less heavily regulated commercial property market. Poly Real Estate Group (600048.SZ), for instance, raised its investment in the retail property sector to 30% of its total investments, while China Vanke (000002.SZ) invested about RMB26 billion in commercial properties in Beijing, Dongguan and Wuhan. Such moves helped boost the retail property market: according to the National Bureau of Statistics of China, the sold area of commercial properties rose 12.6%, while sales volume increased 23.7% in 2011. In the second half of 2011, there were signs of slowdown in both China's economy and within its real estate sector, given the impact of China's macro-economic regulations and the European and American debt crises. However, on the whole, the Chinese economy remained strong. The total value of retail sales reached RMB18.1 trillion last year, up 17.1% from 2010, while per-capita consumption expenditure of urban households rose 6.8%. Along with increases in national income, strong growth was also recorded in the rents and capital values of retail properties. According to Knight Frank and Holdways, stock of high-end shopping centres grew 110,000485,000 sq m in seven major cities during the second half of 2011. Despite these remarkable increases, strong absorption rates saw vacancy levels drop 0.31.3 percentage points in six of the seven cities, compared with the first half of the year. Monthly rents in all seven cities grew 0.69.2%. In 2010, the consumption expenditure of households in China accounted for 38.4% of the total GDP. This proportion is expected to rise this year, given the expansion in domestic demand. International brands are continuing to expand in China: most of H&M's new global stores this year will be located in China, while its total number of stores on the Mainland is expected to triple over the next three years. Looking ahead, details of real estate investment trusts currently being planned are expected to be released, which will further boost investment in commercial properties in the medium to long-term. In addition, with the expansion of the local insurance industry, insurance premiums for commercial real estate investment will become increasingly common, which in the long run, will help promote development in the retail property market. Therefore, we foresee abundant growth potential in China's retail sector and expect it to outperform the office and residential sectors. In 2012, rents and prices will continue to rise in cities such as Beijing, Guangzhou and Hangzhou, with the highest growth likely to be in Shanghai.
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Chart 1 China retail sales value and per-capita consumption expenditure of urban China retail sales value and per-capita consumption expenditure households
of urban households English
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Per-capita consumer Per-capita consumer spending (RMB) spending (RMB)
16,000
In 2011, the total value of retail sales and per-capita consumption expenditure of urban households rose a respective 17.1% and 6.8%, year on year.
Retail sales value (RMB trillion) Retail sales value () (RMB trillion)
20 18 16
14,000
12,000
12 10 8
10,000
8,000
6,000
6
4,000 4 2 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2,000
0
Per-capita consumption expenditure of urban households
Retail sales value
Source: National Bureau of Statistics of China / Chinese Academy of Social Sciences / Source: National Bureau of Statistics of China / Chinese Academy of Social Sciences / Knight Frank
Chart 2
Retail sales values in 2011
In 2011, the total value of retail sales in both Tianjin and Hangzhou rose 18.7% year on year--the highest amongst the seven major cities. They were closely followed by Chengdu and Shenzhen, which recorded growth of 18.4% and 17.8%, respectively.
Retail sales values inin 2011 Retail sales values 2011
RMB billion
RMB billion RMB billion 800.0 800.0
700.0 700.0
(10.8%) (10.8%)
(12.3%) (12.3%)
600.0 600.0 (17.1%) (17.1%) 500.0 500.0
400.0 400.0 (17.8%) (17.8%) 300.0 300.0 (18.7%) (18.7%) (18.4%) (18.4%) (18.7%) (18.7%)
200.0 200.0
100.0 100.0
0.0 0.0 Beijing Beijing Shanghai Shanghai Guangzhou Guangzhou Shenzhen Shenzhen Tianjin Tianjin Hangzhou Hangzhou Chengdu Chengdu Source: National Bureau of of Statistics of China Source: National Bureau Statistics of China Note: Year-on-year changes in in brackets Note: Year-on-year changes brackets Source: National Bureau of Statistics of China
Note: Year-on-year changes in brackets
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2H 2011
Chart 3 Prime shopping centre existing stock in 2H 2011
Prime shopping centre existing stock in 2H 2011
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In the second half of 2011, the total stock of high-end shopping centres in Beijing reached 7.1 million sq m, the highest among the seven major cities. The average stock in first-tier cities (Beijing, Shanghai, Guangzhou and Shenzhen) reached 5.8 million sq m and for second-tier cities (Hangzhou, Tianjin and Chengdu) the figure was 2.5 million sq m.
million sq sq m million m
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6
5
4
3
2
1
0 Beijing Shanghai Guangzhou Shenzhen Tianjin Hangzhou Chengdu
Source: Knight Frank
Source: Knight Frank
Chart 4 Vacancy rates of prime shopping centres inin 2H 2011 Vacancy rates of prime shopping centres 2H 2011 Vacancy rates of prime shopping centres in 2H 2011
In the second half of 2011, the vacancy rate of high-end shopping centres in Guangzhou was the lowest of the seven major cities, while it was the highest in Chengdu. The average vacancy rate for first-tier cities was 6.6%-- 4.0 percentage points lower than the second-tier cities in the group.
14.0% 14.0%
12.0% 12.0%
10.0% 10.0%
8.0% 8.0%
6.0% 6.0%
4.0% 4.0%
2.0% 2.0%
0.0% 0.0% Beijing Beijing Shanghai Shanghai Guangzhou Guangzhou Shenzhen Shenzhen Tianjin Tianjin Hangzhou Hangzhou Chengdu Chengdu
Source: Holdways / Knight Frank Source: Holdways / Knight Frank
Source: Holdways / Knight Frank
Rents of prime shopping centres in Shanghai were the highest among China's seven major cities. The average monthly rent of first-tier cities reached RMB1,462.5 per sq m--54.1% higher than the second-tier cities in the group.
Monthly rents of first floors of prime shopping centres in 2H 2011
RMB per sq m per month (leasable) month (gross) 1,800
Chart 5 Monthly rents of first floors of prime shopping centres in 2H 2011
RMB per sq m per
1,600
1,400
1,200
1,000
800
600
400
200
0 Beijing Shanghai Guangzhou Shenzhen Tianjin Hangzhou Chengdu
Source: Holdways / Knight Frank Source: Holdways / Knight Frank
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Table 2
Outlook for the retail markets in major Mainland cities
Strong local purchasing power has been attracting international brands to enter first and second-tier cities.
City Beijing
Outlook International brands continued to set up flagship stores in Beijing. French fashion brand Dior opened its store in Beijing's Shin Kong Place at the end of 2011, with a floor area of approximately 800 sq m. Meanwhile, high-end fashion retailer JOYCE opened a 2,300-sq-m store in Phase III of China World Shopping Mall--its first flagship store in Beijing and its largest in China. A number of international brands set up in Xujiahui, boosting the tenant profile in the area. Gucci will open a store there in March 2012, following luxury brands such as dunhill, Chloé, Vivienne Westwood, Loewe and Escada, which all entered the Shanghai market last year. A number of luxury brands opened in Pearl River New City. At the beginning of 2012, luxury brand retailer MIBC, which distributes over ten international brands including Gucci, Prada and Dior, opened its first flagship store in southern China in the Happy Valley mall. Retail development in Shenzhen has been relatively innovative and shopping centres have made great efforts to establish unique features. Haiya Mega Mall has opened The Grand Theatre; Shanghefang includes a Scholarly Hall; while the IN TOWN Shopping Mall has created a street-shop atmosphere with an open-air environment. Ikea, the largest retailer of household supplies in the world, opened its tenth China shopping centre in Tianjin, following those in Shanghai, Beijing and Chengdu. The facility has a floor area of approximately 45,000 sq m, selling as many as 7,500 commodities. Prada-- which first entered the Hangzhou market in 2007-- will open two more shops in 2012, following expansions by Louis Vuitton, Gucci and Hermes during the second half of 2011. The menswear section in its Hubin Store will be its largest across China. The core area of Tianfu New City has been developing rapidly, attracting many foreign-owned enterprises. Lotte, the high-end South Korean department store, announced plans to open a 78,000-sq-m flagship outlet in New Century Global Center in April 2013.
Shanghai
Guangzhou
Shenzhen
Tianjin
Hangzhou
Chengdu
Table 3
Outlook for retail property prices and rents in major Mainland cities
Retail rents and prices in China are expected to grow.
Beijing Retail property prices Retail property rents
Shanghai
Guangzhou
Shenzhen
Tianjin
Hangzhou
Chengdu
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2H 2011
Table 4
Main shopping streets and business areas in major cities will be the focus of competition for leading domestic and overseas brands, which will push up the capital values of such shops.
Major retail areas in major Mainland cities
City Beijing Major shopping streets · Wangfujing Avenue · Qianmen Avenue · Xidan Avenue · Shangxiajiu Road · Beijing Road · Tianhe Road · Nanjing East Road · Nanjing West Road · Huaihai Road Middle · Huaqiang North Road · Dongmen Road · Nanjing Road · Binjiang Road · Heping Road · Yan'an Road · Hubin Road · Chunxi Road · Hongxing Road Major retail areas · Wangfujing · CBD and vicinity · Haidian Zhongguancun · Tianhe CBD · Pearl River New City · Xujiahui · Lujiazui · Luohu Commercial City · Futian CBD · Nanshi · Xiaobailou Area · Wulin Business District · Huanglong Business District · Qingchun Business District · Tianfu New City · Luomashi · Yanshikou
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Guangzhou
Shanghai
Shenzhen Tianjin
Hangzhou
Chengdu
Map 1
Seven major cities in Mainland China
China's seven major cities are Beijing, Guangzhou, Shanghai, Shenzhen, Tianjin, Hangzhou and Chengdu.
Beijing Tianjin
Chengdu
Shanghai Hangzhou
Guangzhou Shenzhen
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Bringing clarity to China's property market
We have access to a unique database covering the market data of 35 Mainland cities, with the potential of expanding to 100 cities.
immense interest in this thriving sector. The real-estate sector accounted for 20.4% of China's RMB30.2 trillion fixed-asset investments last year. Meanwhile, foreign direct investment (FDI) in China's real estate sector amounted to USD26.9 billion in 2011, accounting for 23.2% of the country's total inbound FDI. Despite the importance of this sector, there is much misunderstanding about China's property market, due to a lack of consistent statistics. Against this backdrop, international property consultancy Knight Frank and China-based property consultancy Holdways have formed an alliance to fill the gap in accurate statistical data and bring clarity to China's property market. We have access to a unique database covering all major markets and are committed to applying our expertise in property research and analysis, to organise and present the data in a consistent and concise way. This report covers the retail property market data of China's seven most important cities, spanning the Bohai Rim region in the north; the Yangtze River Delta in the east; the Pearl River Delta in the south and the western regions. Please feel free to contact us if you require more specific information about China's property market.
About Holdways
Beijing Holdways Information & Technology Co Ltd, founded by the China National Real Estate Development Group Corporation, is one of the first property information and consultancy service providers in China. With comprehensive property and finance databases and strong market research and analytical power, staffed by qualified and experienced professionals, Holdways provides real estate intelligence, market research, competitor analysis and strategic consultancy services to both domestic and international companies.
About Knight Frank
Knight Frank LLP is a leading independent global property consultancy. Headquartered in London, Knight Frank and its New Yorkbased global partner, Newmark Knight Frank, operate 243 offices in 43 countries across six continents. More than 7,060 professionals handle in excess of US$817 billion worth of real estate annually, advising clients ranging from individual owners and buyers to major developers, investors and corporate tenants.
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China has the world's largest housing market and investors--both foreign and local--have
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/ #
47.2 13.5 4.1% 6.2 18.1 21,810 15,161
+9.2%# +0.5% +27.9% +17.1% +8.4% +6.8%
0.69.2
46 (600048.SZ) 30(000002.SZ)260 12.623.7 18.117.16.8 11.048.5 0.31.3 0.69.2 38.4 H&M
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() ()
16,000
17.1 6.8
() ()
20 18 16
14,000
12,000
12
10 8 6
10,000
8,000
6,000
4,000 4 2 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2,000
0
/ / / /
18.7 18.4 17.8
800.0 800.0 (10.8%) (10.8%)
700.0 700.0
(12.3%) (12.3%)
600.0 600.0 (17.1%) (17.1%) 500.0 500.0
400.0 400.0
(17.8%) (17.8%)
(18.7%) (18.7%) (18.7%) (18.7%) (18.4%) (18.4%)
300.0 300.0
200.0 200.0
100.0 100.0
0.0 0.0
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711.6 575.2 249.0
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6
5
4
3
2
1
0
6.6 4.0
14%
12%
10%
8%
6%
4%
2%
0%
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)() 1,462.5 54.1
1,800 1,600 1,400
(
1,200
1,000
800
600
400
200
0
/ /
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(Dior) 800 (JOYCE) 2,300 (dunhill) (Cholé)·(Vivienne Westwood)(Loewe) (Escada)(Gucci) (Prada)MIBC ·IN TOWN (Ikea) 4.57,500 (Louis Vuitton)(Hermes) (Lotte) 7.8
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Contacts
Editor-in-Chief
Thomas Lam Director, Head of Research, Greater China Knight Frank
+852 2846 4819 thomas.lam@hk.knightfrank.com
Assistant Editor-in-Chief
Knight Frank and Holdways offices
Jason Hu Director, Research Services Holdways
Helen Liu Director and General Manager Holdways
Jacky Wei Senior Manager, Research & Consultancy, Beijing Knight Frank
+86 10 5128 4009 Ext 805 huzq@holdways.com
+86 10 5128 4009 Ext 812 liusj@holdways.com
+86 10 8518 5758 Ext 816 jacky.wei@cn.knightfrank.com
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