Shop rents in most mainland cities are expected to increase steadily as retail sales continue to grow on the back of a vast market of young, fashion-conscious shoppers who are willing to spend a significant proportion of their monthly incomes in stores, says property consultancy CBRE.
The trend will not be confined to the first-tier cities, and tier-two cities, which are on the radar of international retailers, are expected to see a steady rise in new entrants to their retail markets.
Retail sales on the mainland last month grew 12.9 per cent year on year, compared with a year-on-year increase of 12.8 per cent increase in April. That's still below the government target of 14.5 per cent for the year.
"The Chinese retail industry is picking up and is expected to become the driving force in China's economic growth ," said Chen Hongfei, director of CBRE research for northern China.
Rising retail spending power would attract local and international retailers to establish their presence, which in turn would support property rents, he said.
In Beijing, the prime retail market has seen steady growth since 2003, and prime retail rents reached 40.8 yuan (HK$51.40) per square metre per day in the first quarter of this year, up by 2.6 per cent quarter on quarter.
There has been a steady increase in new retail entrants to tier-two cities.
Changsha, the capital of Hunan province, with a population of just over seven million, is one of the targets of overseas developers and retailers.
Hong Kong developer Wharf (Holdings) is building the Changsha IFS tower in the prime area of Jiefang Road in the Furong district in the city centre. The 725,000 square metre development comprises a 452-metre tower and another 300-metre tower atop a 229,000 square metre retail mall, and offers upscale retail and grade-A office space as well as a five-star hotel.
The planned mall will be among the largest in Changsha and the central region.
"It will be the best-located shopping mall in the city," said Johnson Liu, general manager of Hunan Prosperity Property, a unit of Citic Capital Holdings. The mainland-backed investment firm on Monday closed the US$683 million Citic Capital China Retail Properties Investment Fund, which has built the ID Mall in Changsha.
Liu said Wharf would change the landscape of Changsha's retail property market with the completion of the mega mall in 2016. It is expected to draw many big international names to the city.
"It will speed up the development of Changsha's retail property market, rather than create a threat to us," said Kurt Ho, director of Citic Capital's real estate unit.
According to CBRE, Chengdu, Hangzhou, and Wuhan are on the radar of international retailers that are already established in Beijing, Guangzhou and Shanghai.
"The main second-tier cities are developing their retail property markets faster than the relatively mature first-tier cities," Helena Wang, director of retail services, northern China, CBRE said.