CBRE Releases China Retail Property Investment Guide
CBRE Releases China Retail Property Investment Guide
October 20, 2014
Shanghai, Beijing and Hangzhou Rank as Best Markets for Investment
October 20, 2014, Hong Kong– CBRE
today released MarketScore: the Key to
Investing in the China Retail Market, a special report that analyzes retail
property investment opportunities in 17 major cities in China. The study
concludes that Shanghai, Beijing and Hangzhou currently offer the brightest
prospects for retail real estate investors, and further advises that investors
must exercise caution when considering opportunities in China's second-tier cities such as
Shenyang and Wuxi.
The new report, which follows an earlier CBRE MarketScore
report released in January
focusing on the China office property market, analyzes the 17 city markets in
terms of 14 key indicatorsthat
influence the retail property market performance.
It should be noted that a MarketScore ranking
reflects the overall investment conditions for a given city. An excellent
quality retail property in a city with a low MarketScore ranking may therefore
still merit consideration, while an average quality property in a city with a high MarketScore ranking
is not necessarily a good investment.
Shanghai, Beijing and Hangzhou Rank Highest,
Chengdu Takes Fourth
retail property market currently exhibits both strong supply and strong demand.
Retail rents in the city have been increasing at a steady pace, with rents in
central areas increasing at a CAGR of about 7.9% and vacancy rates remaining
well below 10%.
As the leading city real estate market in China,
Shanghai has long attracted interest from retail property investors and
transactions have been consistently brisk. According to CBRE statistics,
en-bloc investments (transactions greater than USD$ 10 million) in retail
properties in Shanghai in the period 2005 - 2013 totaled some RMB 34.5 billion
in value, accounting for approximately one third of the nation’s retail en-bloc
transaction volume during the same period.
Secondary commercial hubs in Shanghai have been
developing rapidly, and CBRE expects they will continue to grow at an even
faster rate. Between 2010 and 2013 these secondary areas grew by 67.1%, some
46.6 percentage points higher than the growth rate for the core retail areas in
the city. Meanwhile, vacancy rates in the secondary areas declined from 15% at
the start of 2010 to 11.3% by end of 2013.
likewise holds significant potential for retail property investors. The capital
city ranks highest in the nation in terms of overall retail consumption, with
spending on high-end goods accounting for a considerable proportion.
Additionally, the retail stock in Beijing is relatively dispersed, with only
20% of it located in central hubs such as Xidan, Wangfujing and CBD areas, and
the remaining 80% distributed among a range of secondary sub-markets. With land
in short supply within the city's five ring roads and new regulations
prohibiting the construction of large-scale public projects in core areas, the
Beijing retail market is expected to
continue evolving in decentralized fashion.
Beijing holds strong attraction for international
retailers, who are entering the city market at increasing speed. CBRE research
has revealed that in 2013 alone 34 new international brands entered Beijing,
more than three times the number for 2012.
Tight supply is the most salient feature of the Hangzhou market presently. The city has
a relatively small stock of retail space and very low vacancy rates. As of Q2
2014, supply of high quality retail properties in the city totaled only about 1
million sq. m. and vacancy rate was
only 1.7%, both numbers the lowest among all 17 cities covered in the
Unsurprisingly, these conditions have been driving
rents upward at a fast rate. Data collected by CBRE shows that in the period Q2
2011 - Q2 2014, rents for ground-floor space in high quality properties rose by
20.9%, far higher than both the 8.7% average increase for second-tier cities and the
9.5% jump in the national index for the same period.
A low number of en-bloc transactions in the city
over the last few years means Hangzhou occupies a middle position among the 17
cities on the Risk index of the MarketScore model. However, it is likely that
investment in retail properties in the city will pick up over the coming 2 to 3
Rapid growth in the operations of international
and domestic retailers in the Chengdu
market has resulted in significant absorption at the city's prime retail
locations during the last three years. Chengdu has risen to become China's
"Fourth City" in terms of consumption.
The vacancy rate for high quality properties in
Chengdu is only 7.6%, but a large amount of new supply now in the development pipeline
means increasing challenge for investors in coming years. According to CBRE
research, Chengdu presently has 3.2 million sq. m.
of shopping center space under construction, making it the 2nd most active city
in the world in terms of retail property development. Only Shanghai, with 3.3
million sq. m. underconstruction, ranks
higher. Approximately 3.9 million sq. m.
of new supply will enter the Chengdu market by the end of 2017, of which 75%
will be in secondary areas. These secondary areas will mature gradually over
the next 2-3 years.
Shenzhen Underperforms; Supply Exceeds Demand
is the only first-tier
city that failed to achieve a top four ranking on CBRE's MarketScore index,
coming in at sixth. This is surprising given that city residents have the
highest average disposable income among major cities in China, and that their
consumption power is likewise among the highest in the nation. However, a
significant portion of consumption by city residents - high-end consumption in
particular - takes place in Hong Kong. Moreover, Shenzhen currently has the
second highest amount of retail space per capita among major cities in China,
with two times more space per capita than Shanghai or Hangzhou.
Some 2 million sq. m.
of new supply that will come on line over the next three years will make
finding tenants more challenging for Shenzhen's shopping center landlords.
Individual investors are active in the retail property market, and most
transactions in the city have been strata-title transactions, limiting
opportunities for en-bloc investments as a result.
Shenyangis the largest retail market in Northeast China.
The city has an abundance of department stores and shopping centers, and the
overall retail vacancy rate stood at a relatively high 19.1% as of Q2 2014.
Retail centers in the city face three main challenges: local consumers prefer
to buy clothing and footwear at department stores, and visit shopping malls
chiefly for dining and entertainment; lack of differentiation and uniqueness;
developers of many of the city's shopping malls lack of operating experience, resulting in poor performance by
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.