Shopping centre glut to hit mainland China cities

Abundant supply is not only clouding the residential property market's prospects on the mainland, but also its retail property sector.

Property consultants said the sector was seeing a glut of new shopping centres, with supply to peak in a number of cities in the next two years.

The Hangzhou and Nanjing markets would see their supply peak this year, said commercial real estate service provider DTZ, with 476,100 square metres of prime retail space scheduled to be launched in Hangzhou's central retail hub and 269,894 square metres in Nanjing's.

Knight Frank estimates Shanghai will see more than 20 shopping centres open this year, offering about 1.5 million square metres of retail space.

Property consultant Savills said seven high-end shopping malls are expected to be launched this year in the Futian, Baoan, Nanshan and Longgang districts of Shenzhen, adding 740,000 square metres of retail space to the market and pushing total stock up by 31.9 per cent to 3.06 million square metres. Shenzhen's retail market is almost saturated. Savills said additional supply in the next three years is expected to reach 1.4 million square metres, significantly increasing competition in the Shenzhen market.

Meanwhile, more than a million square metres of retail space will be added to the Chengdu market this year, mostly in non-core areas.

"With abundant new retail supply in the pipeline and a slower economic growth target of 7 per cent in 2015, growth in retail property rents and prices will be suppressed in major Chinese cities this year," said David Ji, director and head of research consultancy for greater China at Knight Frank.

The increase in supply has resulted in a rise in vacancies, Knight Frank said, with Shenzhen and Chengdu experiencing retail space vacancy rates of about 15 per cent in the second half of last year. Landlords are also facing rising competition from e-commerce.

DTZ said the rise of e-commerce had put a lot of pressure on bricks and mortar retail properties in eastern China.

To compete with online shopping and attract people back to shopping centres, many landlords have adjusted tenant mix and increased the proportion of food and beverage outlets and entertainment facilities in their malls.

Cooperation with the online market had become a major theme for offline retail operators, property consultants said, with market moves to embrace the online-to-offline concept drawing a lot of attention.