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.