china retail snapshot - cushman &...

C H I N A R E TA I L S N A P S H OT | Q 4 2 0 1 7 1

RETAILSNAPSHOT

CHINA

Q4 2017

2 C U S H M A N & WA K E F I E L D R E S E A R C H

China’s bricks-and-mortar retailing gradually recovered in 2017. Through the first 10 months of the year, Shenzhen held the top

position in terms of retail sales among Tier-1 cities, recording 9.2% y-o-y growth.

Guangzhou Shanghai Shenzhen Beijing China

Source: National Bureau of Statistics, Beijing/Shanghai/Guanghzou/Shenzhen Statistics Bureau

%

Growth Rates of Total Retail Sales of Consumer Goods

ECONOMYSECTION 01

0

2

4

6

8

10

12

14

Jan.

-Feb

. 201

5

Jan.

-Mar

.

Jan.

-Apr

.

Jan.

-May

Jan.

-Jun

.

Jan.

-Jul

.

Jan.

-Aug

.

Jan.

-Sep

t.

Jan.

-Oct

.

Jan.

-Nov

.

Jan.

-Dec

.

Jan.

-Feb

. 201

6

Jan.

-Mar

.

Jan.

-Apr

.

Jan.

-May

Jan.

-Jun

.

Jan.

-Jul

.

Jan.

-Aug

.

Jan.

-Sep

t.

Jan.

-Oct

.

Jan.

-Nov

.

Jan.

-Dec

.

Jan.

-Feb

. 201

7

Jan.

-Mar

.

Jan.

-Apr

.

Jan.

-May

Jan.

-Jun

.

Jan.

-Jul

.

Jan.

-Aug

.

Jan.

-Sep

t.

Jan.

-Oct

.


Source: National Bureau

of Statistics

%

%

Growth Rate of Online Retail Sales of Physical Goods

“ China’s bricks-and-mortar retailing gradually recovered in 2017. Through the first 10 months of the year, Shenzhen held the top position in terms of retail sales among Tier-1 cities.

6.0

6.5

7.0

7.5

8.0

8.5

9.0

2016Q3 2016Q4 2017Q1 2017Q2 2017Q3

0

5

10

15

20

25

30

35

40

45

50

Jan.

-Feb

. 201

5

Jan.

-Mar

.

Jan.

-Apr

.

Jan.

-May

Jan.

-Jun

.

Jan.

-Jul

.

Jan.

-Aug

.

Jan.

-Sep

t.

Jan.

-Oct

.

Jan.

-Nov

.

Jan.

-Dec

.

Jan.

-Feb

. 201

6

Jan.

-Mar

.

Jan.

-Apr

.

Jan.

-May

Jan.

-Jun

.

Jan.

-Jul

.

Jan.

-Aug

.

Jan.

-Sep

t.

Jan.

-Oct

.

Jan.

-Nov

.

Jan.

-Dec

.

Jan.

-Feb

. 201

7

Jan.

-Mar

.

Jan.

-Apr

.

Jan.

-May

Jan.

-Jun

.

Jan.

-Jul

.

Jan.

-Aug

.

Jan.

-Sep

t.

Jan.

-Oct

.

Growth rate Share of all retail sales

Source: National Bureau of Statistics

Growth Rate of Sales at Traditional Bricks-and-mortar Stores


China’s Tier-1 cities added a combined 1.85 million sq m of new prime retail supply in Q4. New shopping center completions in Q4 included Uniwalk in Shenzhen, WF Central in Beijing, Xuhui SML in Shanghai and i-Club in Guangzhou. Prime retail stock across China’s Tier-1 markets reached 28.3 million sq m at year’s end.

Vacancy rate in Tier-1 cities remained stable on the whole in Q4

869,000 sq m 460,000 sq m 162,000 sq m 360,000 sq m

Shanghai Guangzhou ShenzhenBeijing

Beijing12.5%

Guangzhou7.9%

Shanghai4.3%

Shenzhen2.7%

Vacancy rate in Tier-1 cities

Rental growth was strongest in Guangzhou among Tier-1 markets thanks to the tenant mix upgrades in core retail areas. The city’s average rent increased 1.9% q-o-q to RMB824 per sq m per month at the end of Q4. Average rent in Shanghai and Beijing both increased 0.1% q-o-q, to RMB1,941 and RMB2,468 per sq m per month, respectively. Rent in Shenzhen slightly decreased 0.1% q-o-q to average RMB939 per sq m per month.

MARKETOVERVIEW

SECTION 02


China’s four Tier-1 cities are set to receive more than 4.8 million sq m of new retail supply in 2018. A large portion of the new completions will be located in emerging retail hubs, reflecting an ongoing decentralization trend in Tier-1 cities from crowded city

cores to suburban areas. Amid fierce competition, proactive pre-leasing activity and tenant mix

adjustments and upgrades are being carried out at shopping malls. Despite a rise in vacancy rates due to the large volume of new supply in Tier-1 cities, the retail market in Tier-1 cities

is expected to continue to grow and develop further.

Chinese consumers are increasingly demanding higher quality goods and services, retail experiences, entertainment and products that promote a healthy

lifestyle. This has been driven by an ever-expanding middle class consumer base and reflected in a clear focus by retailers to target the country’s younger generation of high spending shoppers.

According to the National Bureau of Statistics, the country’s services markets continued to rapidly expand in the first half of 2017. Retail spending surged in communication (9.6%), education, culture and entertainment (10.0%), as well as medical and health care (11.9%) categories on a y-o-y basis. Meanwhile, spending on leisure and entertainment activities achieved strong growth in the first half of 2017, led by guided tours (16.3%) and physical fitness (25.3%) on a y-o-y basis. Meanwhile, consumer confidence remained positive, rising 2 points on the quarter to a record high of 114 on Nielson’s Chinese Consumer Confidence Index in Q3 2017.

Changes in Chinese consumers’ l ifestyle choices and corresponding consumption preferences, coupled with rising purchasing power, are reflected in the following developments to the country’s retail market:

Share of service consumption among total retail sales continues to grow

As more consumers in China prioritize a healthy lifestyle, spending is on the rise in such retail service categories as education, health, leisure & entertainment, organic food, sports equipment and nutritional products. At the same time is growing popularity of new entertainment formats, including VR, immersive theatres and escape game rooms. A fast-paced life in modern cities has meant households place a growing importance on convenience, helping to grow food delivery services and household services as two examples.

Product categories expand to niche segments

Retailers are offering more targeted products to cater to the ever-changing needs of Chinese consumers. For example, most of the major sports retailers have developed unique product lines for different sports and groups of customers. Today, Chinese consumers have more brands at different price points to choose from than ever before. Moreover, demand for imported products continues to grow, especially for personal care products and healthy foods.

Rise of differentiation and personalization

China’s new generation of consumers, who had grown up

with the launch of the Internet, not only pays strict attention to the

quality of products but also focuses on products that advance personalization.

Brand name alone is no longer the major influencer of purchasing decisions. As such,

more and more niche brands, tailor-made products, select shops and designer labels

are being launched.


New technologies are driving forward upgrades to China’s retail market. Mobile payment, big data, intelligent shopping guides, as well as modern logistics technology are helping to improve the consumer experience in China profoundly by more choices and better shopping environment.

Rise of differentiation and personalization

China’s new generation of consumers, who had grown up

with the launch of the Internet, not only pays strict attention to the

quality of products but also focuses on products that advance personalization.

Brand name alone is no longer the major influencer of purchasing decisions. As such,

more and more niche brands, tailor-made products, select shops and designer labels

are being launched.

Consumption is more sophisticated and experience-led

Consumption decisions are no longer limited to the product itself but also heavily influenced by retail services and experiences on offer. More retailers are seeking to strengthen brand competitiveness and promote sales by creating welcoming shopping environments and improving retail services they offer. Restaurants and cafés are leading examples, which have incorporated unique interior decoration and exquisite tableware to attract consumers in the Internet age.



Six shopping malls opened during Q4, adding a total of 869,000 sq m worth of new retail supply. Among the completions was WF Central in the Wangfujing submarket, a high-end retail project invested by Hongkong Land. The project is about 50,000 sq m in retail size, featuring more than 100 retailers and a number of brands new to Beijing or the mainland China market.

Beijing’s retail market reflects the growing desire of shoppers to visit malls for leisure, entertainment and social activities. Space allocated to such retail trades as children’s stores, lifestyle, entertainment, specialty catering and thematic experiences is on the rise in Beijing’s malls. ”

Beijing’s retail market reflects the growing desire of shoppers to visit malls for leisure, entertainment and social activities. Space allocated to such retail trades as children’s stores, lifestyle, entertainment, specialty catering and thematic experiences is on the rise in Beijing’s malls. For example, APM in the Wangfujing submarket has continued to expand its F&B on offer, with new openings

BEIJINGCITY SNAPSHOT


including Danke Family Café, Kuma Café & Store and Blufish in 2017. Others, like Beijing Galleria, have turned to celebrity events to attract customers, such as hosting online celebrity Woshitongdao Twelve Constellations for its sixth anniversary celebration.

Wangfujing was the city’s most active hub for new store openings in Q4. Victoria’s Secret opened a three-storey store in WF Central, the brand’s fourth full-scale store in China and its first flagship in Beijing. Beijing Department Store, located near WF Central, is upgrading its retail experience-led format to cope with market competition. The mall introduced Hamleys, the biggest toy retailer in the UK, in a 11,000 sq m space, marking

the brand’s largest store in the world. The first NIO House opened in Oriental Plaza, taking two floors in a 3,000 sq m space. Elsewhere, GAP leased out a 580 sq m store in Beijing Xin’ao Shopping Center, while French furniture retailer Habitat opened its fourth location in China at Beijing Parkview Green Shopping Center this quarter.

At the end of the year peak, about 80% of new retail projects in Beijing were completed in Q4. New projects were equally distributed in core and non-core areas of the city. By the end of 2018, more than 10 retail projects are scheduled to enter Beijing, bringing approximately 980,000 sq m worth of new retail supply.

1 0 C U S H M A N & WA K E F I E L D R E S E A R C H

SHANGHAICITY SNAPSHOT

C H I N A R E TA I L S N A P S H OT | Q 4 2 0 1 7 1 1

Ahead, we expect average rentals and the occupancy rate in core areas to remain stable. But the rental gap between prime and non-prime areas is likely to widen further during the course of next year.”

Although no new supply completed in Shanghai’s core area in Q4, the city’s active non-core areas added Sun Moon Light in Xuhui, Longhu Paradise Walk in Baoshan and Aegean Shopping Mall in Minhang, bringing a total of 460,000 sq m of new retail supply to the market.

In core areas of the city, renovations and adjustments to the brand mix continued in this quarter. Due to the rise of ecommerce and the ongoing emergence of new submarkets, many retail properties in the core retail area have responded to the rising market pressure with upgrades and transformations under the guidance of local government and the notice of “Opinions on Promoting the Transformation of Bricks-and-Mortar Stores”, which was implemented by the State Council at the end of 2016 to support the development of bricks-and-mortar retailing. During 2017, more than 350,000 sq m of retail projects in the prime areas underwent renovation. CITIC Square, Plaza 66 and Reel on Nanjing West Road have completed partial renovation works, leading to a bump in occupancy along Nanjing West Road and in its overall retail space. Shimao Plaza and Orient Shopping Center have closed for renovation and are due to reopen in 2018.

The Shanghai market remains attractive for international brands. Starbucks opened its

first international Reserve Roastery outlet in HKRI Taikoo Hui in Q4. It is the coffee giant’s largest store in the world with total area of 2,575 sq m, including a Princi Bakery and China’s first Teavana bar. Additionally, Thom Browne’s boutique store opened in IFC Mall, marking its third location in mainland China.

In Q4, many shopping malls held exhibitions and activities to attract consumers during the quarter’s many holidays. For example, Mix City hosted Japanese artist Ninagawa Mika and offered an interactive laser show. Meanwhile, Tmall cooperated with many bricks-and-mortar stores and brands to hold pop-up store activities in 19 shopping malls in Shanghai during Double 11. These pop-up stores featured many activities including VR/AR interactive devices, facial recognition payment and other high-tech retail technology. Finally, Plaza 66 held a Cartier new product launch and a Christmas tree lighting event.

Despite the large amount of new supply to enter the city in 2017, space is tough to come by in core areas with occupancy rate dropping by 1.4 percentage points q-o-q at quarter’s end as ongoing renovations in existing projects continued to attract new brands and flagship stores. Ahead, we expect average rentals and the occupancy rate in core areas to remain stable. But the rental gap between prime and non-prime areas is likely to widen further during the course of next year.


GUANGZHOUCITY SNAPSHOT


Guangzhou added two new projects in Q4. The completions brought more than 162,000 sq m of new supply and increased prime retail stock across the city to approximately 2.6 million sq m at quarter’s end.

Retail brands with distinctive characteristics and a high-quality of service are growing in demand in Guangzhou, prompting retailers to adjust and upgrade their stores. In particular, major F&B outlets continued to enhance store interiors and expand product lines in order to accommodate consumer demands. Heytea opened its first Guangzhou Pink Store in Parc Central, while VT101 added the city’s first McDonald’s of the Future new concept store. New entrants to Guangzhou during the quarter included Outback Steakhouse, UCC Coffee Shop and ramen restaurant Menya Musashi. Children’s retail, especially early childhood education centers, continued to expand with new stores by Gymboree Play & Music, Genius Kids, YMM Art Education and Giraffe English. Designer fashion labels, such as Kenneth Cole and Hardy Hardy, also expanded their presence in Guangzhou.

Along with the evolution of Guangzhou’s retail market and thanks to the rapid development of infrastructure construction and urbanization, the prime retail landscape continues to expand from crowded city cores to suburban areas. Rising competition is prompting malls to improve their operations and initiate upgrades to fill vacant space and accelerate retail space absorption. ”

Shopping mall operators sought to increase footfall and boost sales in the end-of-year peak by introducing themed events and creating holiday decorations. Meanwhile, a number of shopping centers continued to increase their retail experience formats with a variety of leisure and entertainment. For instance, Grandview Plaza is planning to build a Cantonese culture street, a museum of natural history and a tropical rainforest botanical garden in order to create what the mall calls a “Super Experience Center” in Guangzhou.

Guangzhou is set to receive more than 541,000 sq m of new prime retail supply in 2018, including K11, the high-end art mall, in the Zhujiang New Town retail hub. Along with the evolution of Guangzhou’s retail market and thanks to the rapid development of infrastructure construction and urbanization, the prime retail landscape continues to expand from crowded city cores to suburban areas. Rising competition is prompting malls to improve their operations and initiate upgrades to fill vacant space and accelerate retail space absorption.


With available land in short supply in core areas of the city amid rapid urbanization, more and more retail projects are likely to launched in suburban areas. ”

SHENZHENCITY SNAPSHOT


Sitting at the junction of three metro lines, Uniwalk, announced its opening in Q4. With retail GFA of 360,000 sq m, Shenzhen’s newest mall is also the city’s largest and boasts more than 100 F&B outlets, several children’s retail shops and 15 anchor tenants. Retailers include Japanese home furnishing chain NITORI – its first store in Shenzhen – Korean movie theater CGV and a theme block of hand-made culture and creative products.

A number of popular retail brands, such as Theory, Philippe Model, Marie Elie and Reflections, entered the city. Amid fierce competition, existing retail projects continued to carry on with tenant mix adjustments and property upgrades. With a location next to competitor Uniwalk, Haiya Mega Mall, for example, accelerated the pace of adjustment and upgrade by introducing a number of new stores – e.g., YSL, CPB, Dior, Armani Cosmetics, Michael Kors and Sandro – and replaced its private brand supermarket with Super

Species, the popular “new retail” concept. In the city’s core area, Heytea, Super Species and Coucou Hotpot opened new stores in Intown Plaza Futian to boost footfall traffic.

A number of retailers and shopping mall operators leveraged themed events and exhibitions to boost sales at the end-of-year peak. This included a five-month TeamLab Creative Exhibition at Oct Harbour. Others focused on themed stores with distinctive interiors to draw attention and promote sales. For instance, Heytea launched a glass house store named UFO, Heytea Black, Heytea Pink, Heytea Lab and a Day Dreamer store.

Ahead, Shenzhen is set to receive more than 1.3 million sq m of new retail supply in 2018, including major projects PAFC Mall, UpperHills and HNA YOHO. The potential for construction delays on a number of projects may soften the impact from any forthcoming supply pressure. With available land in short supply in core areas of the city amid rapid urbanization, more and more retail projects are likely to launched in suburban areas. With decentralized malls drawing lower rentals on the whole and preleasing already underway on these forthcoming projects, the citywide average retail rent is likely to face downward pressure in the short term.


RESEARCH TEAM

Shaun BrodieSenior DirectorHead of Occupier Research Greater China

[email protected]

XiaoDuan ZhangSenior Director Head of Research South & West China

[email protected]

James ShepherdManaging Director ResearchGreater China

[email protected]

Sabrina WeiSenior Associate Director Head of ResearchNorth China

[email protected]

Gracie MiaoSenior ManagerResearchCentral China

[email protected]

Average Rents in Beijing and Shanghai are based on ground floor in prime locations in major shopping centers, excluding management fee, promotional fee and other fees.

Average Rents in Guangzhou and Shenzhen are based on ground floor in major shopping centers, excluding management fee, promotional fee and other fees.


Leomi SongDirectorHead Of Retail ServicesShenzhen

[email protected]

Robin RaoSenior DirectorHead Of Retail ServicesEast China

[email protected]

Jason LuoDirectorHead Of Retail ServicesNorth China

[email protected]

Duke ZhenExecutive DirectorHead Of Retail ServicesChina

[email protected]

Amond XianSenior Associate DirectorHead Of Retail ServicesGuangzhou

[email protected]

About Cushman & Wakefield

Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 45,000 employees in more than 70 countries help occupiers and investors optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Across Greater China, there are 20 offices servicing the local market. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $6 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. 2017 marks the 100-year anniversary of the Cushman & Wakefield brand. 100 years of taking our clients’ ideas and putting them into action. To learn more, visit www.cushwakecentennial.com, www.cushmanwakefield.com or follow @Cush-Wake on Twitter.

Disclaimer

This report has been produced by Cushman & Wakefield for use by those with an interest in commercial property solely for information purposes. It is not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources which Cushman & Wakefield believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete. No warran-ty or representation, express or implied, is made as to the accuracy or completeness of any of the information con-tained herein and Cushman & Wakefield shall not be liable to any reader of this report or any third party in any way whatsoever. Cushman & Wakefield shall not be held responsible for and shall be released and held harmless from any decision made together with any risks associated with such decision in reliance upon any expression of opinion in the report. Our prior written consent is required before this report can be reproduced in whole or in part.

© 2017 Cushman & Wakefield LLP. All rights reserved.

BUSINESS CONTACT

china retail snapshot - cushman &...

Documents