China Mall Supply Seen Meeting Demand

The glut of shopping centers in China might not be as bad as previously thought, according to Jones Lang LaSalle.

SHANGHAI — China is building an unprecedented number of shopping malls and while some observers might be concerned about an oversupply, new research from Jones Lang LaSalle indicates otherwise.

The glut of shopping centers in China might not be as bad as previously thought, according to the real estate and property management firm. Consumer classes in major cities, like Shenyang, Chongqing and Wuhan, will “grow faster than the supply of shopping malls” resulting in scenario where the supply will be absorbed, the Jones Lang LaSalle study said. It projects that by 2015, the provision of shopping mall space per consumer will be the same or lower than it is now.

That projection comes from focusing on the growing number of individuals in cities across China whose annual income is 30,000 renminbi, or about $4,782, making them the target demographic for shopping malls, Jones Lang LaSalle said. The growth of this consumer class combined with populations living in greater metropolitan areas around cities means that the stock of retail space per consumer in many cities will not increase between now and 2015 and in some instances the stock per metropolitan consumer will decrease over the next three years.

“In many of the major cities, such as Shenyang, Wuhan, Chongqing and Zhengzhou, the consumer class will actually grow faster than the supply of shopping malls between 2012 and 2015,” the study said.

Shopping mall vacancy rates continue to be an issue in cities like Shenyang, Zhengzhou and Chengdu. “This mainly reflects the large percentage of the city’s stock that was recently completed and has had little time to stabilize, rather than weakness in the overall market,” the study said, adding that overtime as the malls stabilize, vacancy rates should decrease.

The study also noted that while the rise of e-commerce in China will not mean the end of shopping malls, it does mean that retail centers must evolve in order to compete. Malls must focus on offering more entertainment and food and beverage options and also offer consumers access to fashion that they cannot find online.

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Of the world’s 25 cities with the most new malls being built in 2011, 13 of them are on China’s mainland, according to research published last year by global real estate firm CBRE.

The CBRE report indicated that the rapid development of retail space in many cities created a situation where supply outstripped consumer demand. In addition, many of the malls in the pipeline are located in subprime areas, creating pent-up demand for prime retail space, CBRE said.