Rents in Shanghai malls kept in check

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.