Fast fashion retailers offered special deals in shopping malls across China

Landlords of shopping centres on the mainland are aggressively pursuing leasing deals with international fast fashion brands as they brace for a looming supply peak of retail space.

To ensure they secure such tenants to draw foot traffic before the market peaks, landlords are offering inducements, and in some cases forgoing base rent and taking a low percentage of the store's turnover instead.

"In some new malls in second- or third-tier cities, landlords are willing to take just a high single digit percentage of these tenants' turnover," said Frank Chen, executive director and head of China research for property consultancy CBRE.

"This is a very flexible arrangement, since tenants do not have to bear a fixed cost."

According to CBRE, new supply of retail space in 17 first- and second-tier cities monitored by the property consultant, such as Beijing, Tianjin, Hangzhou, Shanghai and Guangzhou, reached 2.2 million square metres in the third quarter, the highest ever additional supply released in a single quarter.

Total new supply of shopping space last year amounted to 4.3 million square metres, up from 3.6 million square metres in 2011, according to CBRE. New supply will continue to increase rapidly.

Thanks to their high profile and appeal to young customers, Chen said the presence of fast fashion brands such as Zara, Hennes & Mauritz (H&M), Uniqlo, C & A, and Forever 21 were able to attract foot traffic through the malls, and they also demand large spaces - typically occupying hundreds or even thousands of square metres in a shopping mall. For example Uniqlo has pre-leased a flagship store in Victoria Plaza in Guangzhou of more than 10,000 square metres, which will make it the biggest Uniqlo store in China.