China’s shopping mall operators warned of looming ‘lost decade’; rental prospects dim as shoppers head online

Shopping mall operators on the mainland are bracing for a difficult decade as their retail tenants continue to lose market share to online vendors, suggesting little room to push up leasing rates in line with historic trends, according to a major Hong Kong based developer.

Henderson Land Development vice chairman Peter Lee Ka-kit, the eldest son of Hong Kong’s second-richest man Lee Shau-kee, said rental pressure on shopping malls would persist.

“There are already fewer visitors going to shopping malls in remote areas,” Lee said at a Hong Kong forum last month.

And with advertising now increasingly switching over to online and mobile, Lee added that income from shopping malls will continue to suffer because retailers would turn to China’s tech giants Baidu, Alibaba and Tencent, rather than renting physical space in a shopping mall.

“In the next 10 years, we are not hopeful that we can raise rental rates,” he said. “It will have a serious impact on our income.”

Henderson Land owns 91 million square feet of office and shopping malls in 14 mainland cities.

The mainland’s e-commerce sector, already the world’s largest, is equivalent to the combined size of the next six biggest markets, including the United States, Britain, Japan, Germany, South Korea and France.

China’s online retail sales are expected to rise to US$812 billion in 2017, accounting for 17 per cent of the nation’s total retail sales, according to a June report by global consultancy McKinsey & Company.

Lee also pointed out that the office sector was at risk from new technologies. He noted that holographic technology, which project three-dimensional images to create life-like representations, could be used to simulate person-to-person meetings in the future.

“If this technology can be mass produced in the next five to 10 years, there’s little need for anyone to physically turn up at office meetings,” he said.

However, other experts say that China’s malls will meet the online challenge by adopting different strategies.

Maureen Fung Sau-yim, a director at Sun Hung Kai Properties (China), a wholly-owned subsidiary of Sun Hung Kai Properties (SHKP) said operators have unique advantages that can be expressed through the physical environment.

“Convenient and hip design is what the new generation is looking for when they go shopping. Our shoppers can do payment, redeem gifts and buy tickets through their mobile phones,” said Fung, who is in charge of leasing at Shanghai IFC mall, iAPM in Shanghai.

Interactive activities involving mobile devices enable stores to gather data and enhance the consumer experience, she added.

SHKP is to build a 3 million sq ft high-end shopping mall in its mega 7 million sq ft integrated project, Xujiahui Centre, at Xuhui district, Shanghai.

SHKP owns 12.1 million sq ft of completed investment properties, mainly premium office and shopping centres, in core areas of Shanghai, Beijing and Guangzhou.

“In Shanghai, our malls are mainly targeted at high-end retailers which are less affected by online shopping as customers prefer to visit the shops to experience the goods,” she said. “Sales at our malls registered a positive growth.”