Infrastructure & Real Estate

Market Highlights

China’s retail property market trends upward amid strong economic performance

In the first half of 2011, China carried out a series of measures to regulate the residential market. The ‘New National Eight Articles’ increased the building of subsidised housing, imposed restrictions on home-purchase in individual cities and raised the down-payment ratios and mortagage rates for the purchase of second homes. Meanwhile, the People’s Bank of China tightened credit by successively raising the RMB requirement ratio for deposit-taking financial institutions as well as RMB benchmark deposit and loan rates. With suppressed demand and credit, the transaction volumes of primary and secondary homes declined. Facing financing pressure and increasing residential inventory, some developers have shifted to the lessintervened retail property sector and have been active in building shopping malls to earn stable rental income. For example, Taikoo Hui in Guangzhou and Surprise Outlets Phase I in Beijing opened this year, providing 138,000 and 35,000 sq m of retail space, respectively.

Alongside strong economic development in China, local income and buying power have been on the rise, boosting retail activity and thus the value of retail properties. In the first half of 2011, China’s retail sales value reached RMB8.6 trillion, up 16.8% year on year. Per-capita consumption expenditure of urban households gained 5.9%, reflecting a surge in purchasing power. Robust retail activity has lifted the rents and prices of retail properties.

The completions of new, prime shopping malls have encouraged the expansion of high and midend international brands to benefit from the growth in China’s vast consumption market. Luxury brand Gucci will open 12 stores in China in 2011, a remarkable speed for its China expansion: branches in Kunming, Chengdu, Chongqing, Hangzhou, Guangzhou and Hefei have already opened and six more stores will open by the end of 2011. Gucci now has stores across 31 first and second-tier cities in China. Fast-fashion brand H&M will open 20 stores in China in the second half of 2011, pushing its total number of China stores to 60, including those in Beijing, Shanghai and Kunming.

Looking forward, more multinational brands are expected to enter China, while those who have already entered the market will continue to expand. American fashion brands Abercrombie & Fitch (A&F) and Hollister will open their first Mainland stores in Shanghai, while Apple has just opened its fifth Mainland store (and third Shanghai store) in Nanjing East Road. In the second half of the year, we expect China’s retail property rents and prices to continue to surge due to strong retail demand, with Shanghai, Shenzhen and Hangzhou leading the market.

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