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Beijing’s Retail Property Market, Second Half of 2004

Market Review

The retail market grew significantly during the 2nd half of 2004. From January to November, total retail sales in Beijing were valued at 199.3 billion yuan, a 14.6 percent growth year-on-year. If compared to July-November 2003 figures, total retail sales increased by 9.6 percent in 2004, when strong retail sales formed a basis for a firm demand for retail space. 

Golden Resources Shopping Mall, the largest shopping mall in Asia, opened in October. The mall is home to new Lufthansa and Guiyou department stores, a Lotus Supercenter and other major retail stores. With other newly added entertainment and food and beverage facilities, the project offers a comprehensive trade mix, bringing Beijing residents a new shopping experience.

On December 11, 2004, based on China's World Trade Organization commitments, the country lowered barriers to foreign investors in the retail market. Foreign companies no longer face restrictions on the percentage of their ownership, number of stores or retail locations when opening new outlets in China. The move is expected to result in increased foreign investment and a boom in retail developments.

Large foreign supermarket chains such as B&Q, Carrefour and Lotus Supercenter were the most active players in 2004, as competition in the retail sector intensified.

Supply

The largest concentration of new shopping centres was reported in Haidian District. During the second half of 2004, the Golden Resources Shopping Mall added 550,000 square metres (sq     .m) of shopping space in Haidian; SoShow added 30,000 sq.m of retail space in Chongwen District. Though of a much smaller scale, SoShow provides a neat package shopping, entertainment and food and beverage functions under one roof.

New, large supermarket chains were active during the second half of 2004 in newly developed residential areas such as Century Town, Tongzhou and in the Fengtai Science Park. In most cases landlords leased a majority of retail space to a supermarket chain as anchor tenant, and the remaining space to small shops. The strategy generates increased rental revenues for landlords and stimulates customer traffic for the smaller shops.

Table 1   Selected new supply on retail properties

Demand

The demand from high-end shops and large supermarkets remained strong during the second half of 2004.

In terms of sector, F&B (food and beverage outlets) continued a growth trend established during the first half of the year. The heightened activity means that stores in Beijing are becoming more diverse in terms of format and marketing strategies. "Speakeasy" restaurants and special-featured "book bars" are among the new concepts being introduced in the Beijing market.

Foreign and domestic supermarket chains have expanded their businesses in Beijing with new stores in various residential areas, after the liberalization of the retail market took place, as planned, in December. Domestic supermarket chains continued their expansions to remain competitive in the market. Locations with convenient transportation and dense populations were targeted by such supermarket chains.

Demand from investors for retail properties in Beijing remained firm. The base of investors broadened with domestic market players from other parts of China joining the fray. A number of foreign investment funds have also expressed interest in Beijing's retail property market. One example is that of Singapore-based CapitaLand Limited, which bought two shopping centres previously owned by the Beijing Hualian Group.

Table 2   Selected Leasing Transactions by Trade

Rents and Sale Prices

The average rental for projects with good locations and market positions has gone up.

On the sales front, a strong economy and investor optimism have led to an active market. Some developers have auctioned their retail spaces, which has enhanced their projects' reputations and attractiveness. New Gateway and the Silk Market are examples.

Table 3   Asking Price of Selected Retail Projects

Market Outlook

The demand for shopping centres, supermarkets and shopping streets will remain strong in 2005. As China's economy grows the public's purchasing power will increase. In addition, the country's economic liberalization is expected to continue. On December 11, 2004, for instance, foreign banks were allowed to begin applying to conduct renminbi-denominated banking businesses in Beijing. The banks approved are expected to become a new factor in demand in Beijing's retail property market.    

Further, demand for retail space from supermarket chains will remain strong, with Carrefour, B&Q, and Wal-Mart already making plans to open new stores in 2005. In sum, the market will continue to witness firm demand from a number of sectors in the coming year.

In terms of new supply, more projects are expected to enter the market next year. This will include the Metro World Centre and Kuntai International Centre at Chaowai, Beijing Fortune Plaza and LG Tower in the Beijing CBD, Zhongguancun Shopping Centre and The Big Bell Temple Shopping Centre in Zhongguancun. Together with other new projects such as the new Silk Market and Jinbao Centre, the new completions will provide a significant volume of retail space in Beijing in 2005.

The retail market scene in Beijing is expected to boom in 2005 with both demand and supply anticipated to be very strong. Increasingly intense competition will bring Beijing shoppers more choices, and will encourage developers to implement better marketing strategies, driving the market to become more mature.