Rents in Shanghai malls kept in check

Completion of new shopping centres and an anti-graft campaign that is hitting sales will affect mid- and high-end retail centres

PUBLISHED : Wednesday, 24 July, 2013, 12:00am
UPDATED : Wednesday, 24 July, 2013, 3:18am

Increases in shop rents in mid- and high-end retail centres in Shanghai will be constrained by a large amount of emerging supply, as well as the mainland's anti-graft campaign that is slowing retail sales' growth, say property consultants.

While luxury brands remain eager to secure prime locations with high visibility and traffic, they have become cautious about expanding too aggressively into untested projects in emerging areas.

Two new mid- to high-end shopping centres were completed in the first half of the year - K11 in the Huaihai Road catchment and L'Avenue in the Hongqiao catchment. That brought the total size of the Shanghai mid- to high-end shopping centre property market to approximately 3.4 million square metres by the end of the second quarter, up 2.8 per cent year-on-year, according to international property consultant Colliers International.

The average ground floor fixed rent in mid- to high-end shopping centres in the city rose by 1.1 per cent in the first six months to 40.7 yuan (HK$51)per square metre, with demand mainly from the luxury, fashion, education, entertainment, food and beverage sectors, Colliers said. It expected short-term rental growth to remain constrained.

In the second quarter, rents in primary and secondary locations increased by only 0.7 per cent and 0.2 per cent respectively on a quarterly basis, according to another property consultant, Savills. Rents in emerging locations did not increase.

Developers of new malls will have to take a greater share of the performance risk in order to attract retailers, said James Macdonald of Savills. Smaller projects with retail space of less than 40,000 square metres are finding it hard to compete with their larger peers, he said.

Maureen Fung Sau-yim, general manager of Sun Hung Kai Properties' leasing department, said the market in Shanghai faced an oversupply of retail space, at a time when sales growth of high-end products was falling against the backdrop of anti-corruption measures on the mainland.

"Sales of watches and jewellery were hit in the first quarter. They have been gradually picking up in April and May," said Fung.

But the change in the market is unlikely to prompt luxury retailers to relocate since rents are only a small part of their budgets. They are also willing to pay high rents to malls that can secure sales revenue.

Fung argued Sun Hung Kai would be able to secure growth of more than 20 per cent in rental incomes from its Hong Kong properties when leases come up for renewal in its IFC mall.

The group will open its apm mall, located at the western end of Huaihai Middle Road, next month. The mall, which has drawn trendy luxury brands, will be open until 11 pm to attract late-night shoppers.