Foreign retailers buying, not renting

PUBLISHED : Thursday, 27 October, 2011, 12:00am
UPDATED : Thursday, 27 October, 2011, 12:00am


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Stiff competition for prime locations and soaring rents mean big foreign retailers are shifting from leasing to buying land to develop their stores in mainland cities.

'There is a trend formulating. Most of them adopting this strategy are big-box retailers,' said Ada Nip, head of retail services at property consultant DTZ. The term 'big box' refers to physically large retail outlets that are often part of a chain.

Nip said big-box retailers faced great pressure to pay sharply higher rents when their leases - which usually run for 10 to 15 years - expire.

'For example, monthly retail rents in the very prime area of Beijing ranged from 1,000 yuan to 2,000 yuan per square metre in 2003, but now rents are jumping to more than 3,000 yuan (HK$3,660) per square metre, an increase of two to three times over eight years,' she said.

As a long-term investment strategy, foreign retailers prefer to buy land or team up with developers to build their stores, especially in inland cities or suburbs of big cities where land is cheaper, according to Nip.

Inter Ikea Centre Group, the developer co-owned by Sweden's Ikea, recently announced an investment of four billion yuan to develop a new shopping centre in Shanghai.

It will also open shopping centres in Wuxi, Beijing and Wuhan in 2013, 2014 and 2015, respectively, Colliers International said.

British firm Tesco plans to build 50 shopping centres under its brand 'Lifespace' on the mainland by 2015.

French firm Auchan Group signed an agreement in August with Yantai's government to invest US$30 million to build a supermarket and shopping centre with a gross floor area of 50,000 square metres in the city. Lina Wong, a Colliers managing director, said foreign retailers had become more familiar with the mainland market, and more experienced in retail operations, and it seemed more sensible to develop self-owned properties, as they could not gain from rising property values as tenants.

Foreign retailers began investing about two years ago, with Tesco partnering HSBC Nan Fung China Real Estate Fund and Singapore-listed Metro Holdings to build a shopping centre in Fushun city. Earlier this year, the three firms jointly developed two shopping centres in Fujian province and one in Shenyang.

Wal-Mart also bought sites in Dalian in the northeast for the first time last year. Rents for shopping centres in Shanghai continued to rise steadily, bolstered by strong consumer demand, Colliers said.