Mall boom continues despite bubble fears
Construction of shopping centres has exploded on the mainland, with developers still confident about demand despite saturation concerns
How many shopping malls does China need? If someone has come up with a sound answer for the retail needs of the world's most populous nation it may well have been drowned out by the construction noise from projects sweeping the mainland.
Property experts point to market saturation in some cities, but some mall operators justify their expansion plans by touting marketing strategies built on initiatives such as a better mix of tenants under their roofs.
"Apparently, shopping mall bubbles have emerged in some mainland cities, although some other places still have space for new malls," said Chu Hsiang-yun, senior director of national retail services at global property consulting firm CBRE.
More than half the malls to emerge from the 82 million square metres of projects under construction globally are in China. Of these, eight of the 10 biggest malls are also on the mainland, a CBRE report shows.
Separate research by global real estate services firm Jones Lang LaSalle shows that 150 malls will open in 20 major mainland cities this year, each with an average gross floor area of 80,000 square metres. That compares with 80 new malls opened last year. The area devoted to malls in Beijing, Shanghai, Guangzhou and Shenzhen will rise by 40 per cent by 2015, while space in 16 smaller cities may even double by then, it said.
"Every property developer wants to have access to the domestic market's rising middle class by getting into the retail business. Local governments are also encouraging mall construction as they want to increase tax revenue," said Steven McCord, associate research director at Jones Lang LaSalle, citing the factors behind the construction surge. The central government's measures to curb the residential property market since 2010 have served to strengthen this trend, boosting the appeal of retail and office markets to developers, he said.
Chu said some local governments had asked developers to set aside at least 20 per cent of mixed-use projects for retail space - with at times disastrous results. "We have seen some cases in which the developers had to sell the places as they couldn't secure enough tenants and customers," he said.
Chengdu is perhaps the busiest mainland city for the construction of shopping centres. According to statistics from Jones Lang LaSalle, some two million square metres of new malls will be completed in the Sichuan capital this year. It is followed by Shenyang, the capital of Liaoning province in the northeast, with about one million square metres, and Wuhan, in Hubei province, with 800,000 square metres.
The sharp increase in the number of malls has led to oversupply problems and high vacancy rates in some centres. "Shenyang is the most heavily saturated city with an average 20 per cent of the mall spaces left vacant," McCord said. Cities such as Chengdu, Tianjin and Zhengzhou are also experiencing relatively high vacancy rates.
In first-tier cities, the competition in the mall industry is reaching unprecedented levels. In Beijing, about 45 large new malls are expected to open this year and the next, with a total gross floor area of five million square metres. Among them is a 172,000 square metre centre to be completed next year by Inter Ikea Centre Group (IICG), a Danish shopping mall developer and operator jointly owned by the Inter Ikea Group and Ikea Group.
"Compared to Europe, everything in China is a lot faster. It would take only five years here from finding a block of land for a project to complete the construction. But in Europe, we do it over a period of 15 years," said IICG managing director John Tegner.
An owner and operator of 29 super-large shopping centres mainly in Europe, IICG has invested more than 10 billion yuan (HK$12.62 billion) in China to build three projects in Beijing, Wuhan and Wuxi, in Jiangsu province. It is now hunting for sites in Shanghai as well.
"First, you have to understand who your customers are, then [make] your place as accessible and friendly as possible, and find the right tenants mix," Tegner said.
Located in Daxing district in south Beijing, the Inter Ikea mall has signed contracts with big retailers like Ikea, Suning Appliance, Auchan hypermarket and a further 20-plus tenants. "Yet you cannot fill your mall with all those big brands," Tegner said. "We plan to introduce more local start-up brands to make our place more interesting. It may be a restaurant run by the best dumpling cook in Daxing or a fashion boutique set up by young designers."
To attract local consumers, IICG also raised the percentage of food and beverage services to 20 per cent, almost double that of its projects in Europe. "People now can buy almost anything online. What we can do is to make our mall a 'meeting place' and give them good reasons to come," said Tegner.
Another local mall operator, Dalian Wanda Group, is also addressing the market challenge by departing from the standard mix of businesses at its centres.
Wang Jianlin, chairman of the mainland's biggest property developer, said earlier this year that its 70-plus Wanda Plaza centres will gradually reduce the percentage of retailing businesses, especially clothing shops, in favour of hair and manicure salons, as well as bookshops and educational and training institutions. The aim of the strategy, he said, was to make shoppers more "sticky" to their malls.
McCord said the management, operation and tenant mix played a vital role in determining the success or failure of a mall.
"Even in those heavily saturated cities, you could be in one of those vacant malls and go across the street and be in one that is quite well occupied," he said. "Since the growth of the number of well-off Chinese consumers is roughly in line with that of shopping malls, we believe the next three years will still be pretty active for shopping mall development in China before the pace of construction can slow down."