SHANGHAI — Brands, developers and other industry players with an established presence in China, as well as those trying to break into the market, face a slowing economy, negative like-for-like sales and a potential oversupply of commercial real estate — but there are reasons for optimism.
This was the message at Real Estate Market Shanghai, a two-day retail real estate forum that ran last week at Shanghai’s JW Marriott hotel.
“Commercial real estate is oversupplied, this is the reality,” said Leo Ding, chairman and ceo of SCPG Group, one of China’s leading commercial real estate investors, developers and operators.
A hot topic at the forum was the rise of shopping centers, which has come at the expense of traditional Chinese department stores and chain stores in recent years. Also on the rise is the outlet mall sector, a relatively new player on the domestic scene, with significant openings over the past two years, including the almost 600,000-square-foot Shanghai Village project, launched by Value Retail last month on the site of Disney’s freshly opened $5.5 billion theme park.
According to data from JLL China, at the end of 2015 there were 848 shopping centers in China, with over 200 planned for 2016 and an average size of 90,000 square meters. Despite the building boom, JLL’s head of China research James Hawkey, reiterated the positive performance of quality shopping centers.
“In the China market, in contrast to Europe and the U.S., the development market is very broad, only a third of projects are being built by the top 20 developers. The problem in China is not with this top third, they know what they’re doing,” he said.
“We have looked at 71 of the best shopping centers in China and they are seeing positive growth. So quality is winning, it’s really the lower-quality ones in poor locations that are suffering.”
Several speakers, including Zhibin Wang, the vice president of commercial real estate for Dalian Wanda — China’s largest commercial real estate company — found particular comfort in the Chinese government’s recent focus on shifting the economy to a consumption-driven model, with growing consumption obviously good news for consumer-driven industries such as retailing.
But lessening the positive impact of growing consumer spend in China is the increasing competition for consumer yuan from alternative avenues, such as e-commerce (China’s e-commerce industry is the world’s largest, growing more than 42 percent in 2015 to reach $672 billion, according to data from eMarketer).
Panel discussions and speakers focused on ways bricks-and-mortar retailers could harness the trend for technology to their advantage, by taking advantage of China’s fast-developing online-to-offline space, as well as broadening their food and entertainment offerings to compete for the leisure time of this growing band of middle-class consumers.
“The cake is getting larger, but there are also more players cutting into the cake, which is putting pressure on traditional retailers. They are talking about covering all channels and O2O, and some believe retailers have to cover all channels in order to survive in the future,” Wang said.
“The future is already here. We need to face up to these challenges.”