Image: Sino-Ocean Taikoo Li, No.8 Middle Shamao Street, Jinjiang District

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Briefing Retail sector April 2017

Savills World Research Chengdu

SUMMARYThe city saw a spree of electronic store openings, including Huawei, Mi, Sony and Microsoft, in the first quarter of the year.

City-wide annual retail sales reached RMB564.74 billion in 2016, up 10.4% year-on-year (YoY), albeit 0.3 of a percentage point (ppt) lower than last year’s growth rate.

No new projects entered the market in Q1/2017, keeping overall retail market stock stable at 3.96 million sq m.

City-wide prime shopping mall vacancy rates increased 0.2 of a ppt quarter-on-quarter (QoQ) to 5.8%, down 1.5 ppts YoY.

First-floor prime shopping mall rents decreased 0.2% to RMB18.1 per sq m per day, up 0.2% YoY.

“Brand adjustments, tenant mix optimisation, and property upgrades will become increasingly commonplace as the city’s retail market evolves. More shopping malls are also expected to improve their facilities, as well as the property management services provided.” Dave Law, Savills Research & Consultancy

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Briefing | Chengdu retail sector April 2017

Economic overviewOverall retail sales reached RMB564.74 billion by the end of 2016, up 10.4% YoY, but 0.3 of a ppt lower than last year’s growth rate. In 2016, household consumer prices increased 2.2% YoY, 1.1 ppts higher than 2015.

SupplyNo new projects entered the market in Q1/2017, keeping overall retail market stock at 3.96 million sq m.

Beijing Hualian Chengdu Shuangqiao StoreThe Beijing Hualian Chengdu Shuangqiao Store in the Chenghua district was the last Beijing Hualian Store in the city’s core urban area to close its doors in January 2017. After opening in 2002, the 35,000-sq m store became one of the most popular department stores in the city’s eastern area. Following the development of the city’s retail market in recent years, espectially the openning of Carrefour and MixC in the area, the Beijing Hualian Chengdu Shuangqiao Store recorded a gradual decline in sales. This was compounded by the meteoric rise of e-commerce and rising operational costs which eventually forced the store to shut down.

Renhe Spring Separtment Store (Zongbei Store)The Renhe Spring Department Store (Zongbei Store) located on South Renming Road also ceased to operate in January 2017. The Zongbei Store opened in 2003 and became one of the most famous luxury stores along South Renming Road. The vacated building will now be leased to home-store Markor Furnishings.

RentsFirst-floor shopping mall rents decreased 0.2% QoQ, to RMB18.1 per sq m per day in Q1/2017. Prime retail areas saw average rents decrease by 0.1% to RMB 37.6 per sq m per day, while non-prime retail areas recorded a 0.2% decline QoQ to RMB12.2 per sq m per day.

Faced with intensifying market competition and shifting consumer demand, landlords are constantly looking to adjust brands and tenant mixes to remain competitive. In order to attract popular brands to

their shopping malls, most operators have been forced to offer more rental incentives, resulting in a reduction of city-wide rents.

Vacancy ratesCity-wide prime shopping centre vacancy rates increased 0.2 of a ppt QoQ to 5.6% during the period. Prime area vacancy rates decreased 0.7 of a ppt QoQ to 5.9%, while non-prime area vacancy rates increased 0.3 of a ppt to 5.5%.

In prime retail areas, shopping malls such as IFS and Taikoo Li consistently attract brands to open flagship stores. In the past quarter, the first Air Jordan flagship store in mainland China opened in IFS,

and the second Innisfree flagship store opened in Taiko Li. The Atrium adjusted its tenant mix, introducing entertainment and catering brands such as MT Movie Scene Room Escape and Lan’s Patisserie. The Atrium further differentiated itself from other malls in the Chunxi Road area by introducing the first cross-broder e-commerce collective store and the largest import supermarket in Chengdu. Given the success of such projects, the average vacancy rate of prime retail areas decreased last quarter.

Children’s and entertainment brands remain the focus of shopping malls in non-prime retail areas, who introduced brands such as Heiluo

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Source: Savills Research & Consultancy

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Source: Chengdu Bureau of Statistics, Savills Research & Consultancy

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April 2017

Theater, Changle Massage, and Gymboree Play & Music in Q1/2017. Electronic brands such as Huawei, Mi, and Sony have acclerated the pace of store openings in non-prime areas. However, while demand remains strong, the repositiong of 9 Square Shopping Mall resulted in vacancy rates of non-prime areas increasing by 0.3 of a ppt QoQ. After 9 Square Shopping Mall signed a cooperation contract with Winshare in Q4/2016 to open a large bookstore in the mall, it began to move out brands beginning in the first quarter of 2017.

Market information- The Air Jordan flagship store, which is the largest in Asia and the first in mainland China, opened in Chengdu IFS in January 2017. In addition to a product line catering to training, entertaiment and children, the store includes a basketball park and customisation area, providing a personalised shopping experience for customers.

- The first Innisfree flagship store in Western China, and the second on the mainland, opened in Taikoo Li in January. The flagship store covers 255 sq m across two floors. The first floor includes makeup products and

a take-out cafe, while the second floor includes a Green Cafe.

- Following the opening of the brand’s Shanghai flagship store, Victoria’s Secret launched its Chengdu flagship store in MixC in February 2017. The store, which is the brand’s first in Western China and second on the mainland, has a GFA of 2,300 sq m. In addition to accessories and bath products, the Chengdu flagship store also includes lingerie and leisure clothing.

- Zara closed its store at the De Luxe Shopping Center in February 2017. The store, which opened in 2011, had three floors and a GFA of over 3,000 sq m and was one of the brand’s first stores to open on the mainland following Zara’s rebranding.

- Heiluo Theatre, a venture between MixC and Sichuan People’s Art Theatre, began operation in March. The theatre comprises space for drama, theatre, art exhibitions, press releases, arts studios, and lectures.

Market outlookYintai Center In99 will launch in the Financial City retail area in Q2/2017. The openning of In99 is expected to introduce new renowned brands to

the city and become a new luxury retail hub in the city’s southern area. The handover will expedite the development of the local retail market and increase the city’s exposure to leading brands, especially in the southern area where there are currently few luxury retailers. However, the launch of In99 will also intensify competition among high-end shopping malls in the Yanshikou area.

Facing an evolving market with shifting customer preferences, some of the city’s shopping malls began to improve their faciliies and customer service offerings in the latter half of 2016. For example, after 10 years of uninterrupted operation, SM Plaza renovated its facade and upgraded aging facilities. Additionally, 9 Square Shopping Mall signed a cooperation contract with publishing company Winshare to tranform it into a culture-focused shopping centre. It is expected that going forward, retail landlords will use all stratagies at their disposal, such as brand and tenant adjustments, property upgrades and improving their property management services, to stand out in an increasingly saturated market.

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James MacdonaldDirector+8621 6391 6688james.macdonald@savills.com.cn

Eric WoManaging Director+8628 8658 7828eric.wo@savills.com.cn

Dave LawDirector +8628 8665 7375dave.law@savills.com.cn