Shanghai Retail Property Market

7/29/2019 Shanghai Retail Property Market

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According to the latest data from the Shanghai Statistics Bureau,Shanghais economic growth continued its rapid pace. In Q12006, Shanghai GDP rose 12.3% year-on-year (YoY). Accordingto government forecasts, Shanghais GDP is predicted to growapproximately 10% in 2006. Investment is still the major dynamicof the economy. With the further macro control of government,the economic growth is focused on quality instead of speed.

2006

12.3%

200610

In Q1 2006, total investment in fixed assets in Shanghai rose14.4% YoY, and growth declined by 10 percentage points.Shanghais economic growth has also rapidly increased the PerCapita Disposable Income of Urban Households in Shanghai by10.8% YoY. The development of the economy and the increase inper capita disposable income has boosted the rapid growth of totalretail sales of consumer goods. In 2005 the permanent populationin Shanghai reached 17.78 million, providing a large base andstable growth in population which has enhanced the growth ofconsumption. In Q1 2006, Shanghais Total Retail Sales ofConsumer Goods continued its double-digit growth, up by 12.8%YoY, thanks primarily to the rapid growth in food and beverage,consumption of petroleum products, and trading. On the otherhand, in Q1 the Consumer Price rose 1.2% YoY. The low level ofinflation reflected the relatively strong purchasing power. ByApril 2006, inflation in Shanghai was lower at 1.1%, maintainingresidents purchasing power at a strong level, and enhancing thedevelopment of the retail industry.

14.4%10

10.8%

20051,778

12.8%

1.2%2006

1.1%

Shanghai Retail Property Market

Economic Review

July 2006

Figure 1 1Shanghai GDP & Total Retail Sales of Consumer Goods Growth Rate

Source: Shanghai Statistics Bureau

Total Retail Sales of Grwoth Rate

GDP Growth Rate

0%

4%

8%

12%

16%

1999 2000 2001 2002 2003 2004 2005 Q1

2006

Growth rate (%)

Figure 2 2Shanghai Per Capital Disposal Income & Inflation Rate


Inflation Rate

Per Capita Disposal Income

-10%

0%

10%

20%

30%

1999 2000 2001 2002 2003 2004 2005 April-

2006


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July 200 6

Market Condition

Supply

20065345,500

33

2515

11

11

In 2006, five prime retail projects will be completed, releasing 345,500 sq m ofretail space. The new supply of prime retail projects has tended to decentralizeto the edges of the city centre, with the majority of new supply concentratedin such areas as Wujiaochang and Zhabei. The major project in Wujiaochang,Wan Da Commercial Plaza, will release approximately 330,000 sq m ofcommercial space when it opens in Q4 2006. According to the developersplans, the project consists of five retail buildings, including a Wal-Martshopping centre, a Hong Kong New World department store, furnishing anddecoration outlets, bookstores and cinemas, and food and entertainmentoutlets. When all the projects are completed, Wujiaochang will be an

important secondary retail centre in northeast Shanghai. Meanwhile, TheLife Hub at Daning, the biggest retail project in Zhabei District, with a totalGFA of approximately 250,000 sq m, will open this autumn. This projectconsists of 15 buildings and 11 squares, a pedestrian street, offices, aninternational hotel and retail facilities covering a total GFA of approximately110,000 sq m, which will make it the most important retail facility in ZhabeiDistrict.

2005

200430

2004

Investment in retail property in Shanghai has grown rapidly over the past fewyears. In 2005, it rose by 30% YoY, thanks to the growth in the economy, percapita disposable income and total retail sales of consumer goods, whichcaused retailers to expand to meet new demand. As well as this, with theopening-up of the retail sector to foreign companies at the end of 2004,foreign retail companies are in intense competition with their localcounterparts under the same market conditions, vying to expand their marketshare and thus enhancing demand for prime retail space. This situation hastriggered the rapid growth of investment in Shanghais retail property.

Figure 3 3Shanghai Prime Retail Property Supply and Commercial Building Completion Growth Rate

Source: Shanghai Statistics Bureau & Colliers I nternational Shanghai

Prime Retail Property Supply

Commercial Building Completion Grow th Rate

Shopping Center

Department Store

0

100

200

300

400

500

1999 2000 2001 2002 2003 2004 2005 2006E

1,000 sq m

-20%

0%

20%

40%

Figure 4 4

Shanghai Retail, F&B Business Units No. & Growth Rate


0

5

10

15

20

25

30

1996 1997 1998 1999 2000 2001 2002 2003 2004

10,000 units

-5%

0%

5%

10%

15%

20%

No. of Bisness Units

Business Units Growth Rate


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July 2006

Market Vacancy

Due to robust demand from local and international retailers, rentals havecontinued to rise. This has stimulated the supply of prime retail property. Thelaunch of some new prime retail property has taken the market from a surplussupply to a balanced level. 24 typical prime shopping centres with a total GFAof 1.8 million sq m were selected to conduct the research. Currently, theaverage vacancy rate for these prime shopping centres is approximately 11%.Except for a project which has a relatively high vacancy rate due to its recentequity transfer and restructuring of the tenant mix, the remaining shoppingcentres still have low vacancy rates. Xuhui District and Jingan are witnessingthe lowest vacancy rates, at 0.3% and 3%, respectively. Nevertheless,although the vacancy is still in a low level, it started to rise gradually due tonew supply in the pipeline.

24

180

11

0.33

In the past few months, the rental for prime retail property has continued torise. However, the growth in the rental has slowed down. The leasing marketfor quality retail property is entering a mature period following its rapidgrowth period. In Q2 2006, the average rental for the ground floor of a primeretail space reached US$110/sq m/month, a price that is expected to risefurther in the second half of the year. The average rentals in Xuhui Districtare at their highest, reaching US$131/sq m/month. Jinan District follows, atUS$125/sq m/month. Xuhui District has high rentals because the rents forthis district are high, with local customers the main consumers in this area.Jiangan District is another district with high rentals due to the high density

of international luxury brands in the area.

2006

110131

125

,

Rental Analysis

Figure 5 5

Shanghai Prime Retail Rental Trend & Vacancy Rate

Source: Colliers International Shanghai

0%

5%

10%

15%

20%

2000 2001 2002 2003 2004 2005 May-

2006

V ac anc y Rent al Gr ow t h Ra te

Figure 6 6

Shanghai Prime Shopping Centre by District Ground Floor

Source: Colliers International Shanghai

Av Rental Vacancy

Av. Vacancy 11%

0

50

100

150

LW J A XH HP PD CN

US $/sq m/mth

-5%

10%

25%

40%

Av. Rental US$110/sqm/mth

Over the past few years, the sustained growth in Shanghais total retail saleshas stimulated the continued expansion of international and domesticretailers. In particular, some international luxury brands are very optimisticabout the potential consumption of the domestic market, which hasenhanced demand for prime retail space in Shanghai. In 2004, business unitsfor retail, food and beverage rose by 6.48% in Shanghai. The sustained growthof business units for retail, food & beverage enhanced the demand for primeretail properties.

2004

6.48%

Demand


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July 2006

Colliers In Shanghai

Colliers was among the first foreign real estate

ervices companies to operate in China, and is

ow firmly established at the forefront of the

ndustry. With China's WTO entry, the Firm,

hrough its continual focus on corporate clients

nd deployment of local talent, aims to deliver

eading local and China wide property solutions.

Established in 1994 as a wholly owned foreign

nterprise, Colliers Shanghai offers a full range

f professional real estate services to both multi-

ational & local companies. Colliers property

management projects extend into cities in East

China including Suzhou, Hangzhou, Changzhou,

Wenzhou and Nanjing. Colliers also has well

stablished offices in Beijing, Guangzhou, Chengdu,

Hong Kong and Macau.

1994

or further details, please contact:

na Wong, Managing Director, East China

mail:[email protected]

harles Zhang, Associate Director, Research & Consultancy

mail:[email protected]

6F Hong Kong New World Tower

00 Huai Hai Zhong Road

hanghai 200021 PRC

el 86 21 61413688 Fax 86 21 61413699

The content of this report is for information only and should not be relied upon as a substitute for professional advice, which should be sought from Colliers International prior to acting in reliance upon any such information.The opinions, estimates and information given herein or otherwise in relation hereto are made by Colliers International and affiliated companies in their best judgement, in the utmost good faith and are as far as possible basedon data or sources which they believe to be reliable in the contest hereto. Notwithstanding, Colliers International and affiliated companies disclaim to the extent permitted by law, any liability in respect of any claim which mayarise from any errors or omissions or from providing such advice, opinions, judgement or information.

Figure 7 7

Source:Colliers International Shanghai

0

3

6

9

12

1999 2000 2001 2002 2003 2004 2005

Bil. RMB

-30%

-10%

10%

30%

50%

Retail Property Investment

Growth rate

The development of the economy and the increase inper capita disposable income of urban households hasenhanced the rapid growth of total retail sales ofconsumer goods, making Shanghai Chinas most

important retail market. The continuous growth of themiddle-to-high income class and the increasingnumber of foreign permanent residents in Shanghai hascreated massive demand in the mid- to high-end retailmarket. Foreign and local retailers are attracted by thehuge potential for investment in Shanghais retailmarket, creating a growing demand for prime retailproperty. With large demand as the trigger, supply ofprime retail properties will rise, causing the market tobecome balanced and the market will enter a matureperiod. In 2005, the growth of Shanghai commercialproperty investment rose substantially YoY to 30%. It isexpected that supply will continue to grow for one ortwo years. The vacancy rate will rise slowly and growthof rentals will slow down.

2005

30

Market Outlook

Major Retail Transactions in Shanghai (Table 1) (1)

Building Name

Sale/Lease Floor

Area (App. sq m)

District /

Company

J ingan 1193 Nanjing Road West Lease 2,000

1,600

1193

Luwan

Zara 1-2/F

Lease Zara 1-2/F

Time Square

8,000Xuhui Sale Best Buy 3-6/FJ iang Shan Building

7,000Changning Lease Yongle B1-B2Cloud Nine Shopping Mall

300Xuhui Lease Sephora 1/FHuijin Plaza

19,000J iading Lease Wal-Mart 2/F-3/FCarnival Plaza

Shanghai Retail Property Market

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