Abundant supply drags down retail rents in major cities

PUBLISHED : Wednesday, 05 August, 2009, 12:00am
UPDATED : Wednesday, 05 August, 2009, 12:00am

Retail rents in major mainland cities fell in the second quarter owing to an abundant supply of retail space, and property consultancy Knight Frank expects the market to continue consolidating next year.

Demand for retail space remained low, Knight Frank said, as local retailers stayed cautious about opening new outlets in the second quarter even though international fast food chains were continuing their forays into the market.

Knight Frank did not expect any improvement in the market situation until the end of next year, when more retailers might be tempted to expand operations once the country's export sector had shown clear signs of recovery.

In the meantime, Knight Frank expected a large amount of new retail space to come on stream in the major cities. In Shanghai, a total of more than 800,000 square metres of new shopping centre space is expected to come on stream in the next 12 months. Super Ocean Sky and 818 Plaza are expected to open this year.

A large number of shopping centres, providing about 600,000 sq metres of retail space in total, would be completed in the next 12 months, the consultancy said.

'The new supply will double the retail area in Tianhe in two years, which will likely impose downward pressure on rents,' it said.

In Beijing, new supply would total 1.1 million sq metres of retail space, mainly in new commercial districts such as Zhongguancun and Olympic Commercial Circle.

Such a large amount of additional supply could increase vacancy rates and drag down rents in the third quarter, the consultancy said. Knight Frank also expected the market to experience a softening of rents.

But on a brighter note for landlords, it also said it expected the market to stabilise by the end of the year, with demand from foreign retailers expected to improve.

The Guangzhou market was performing better, with leasing transactions up 5.2 per cent year on year at the latest count, Knight Frank said.