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Business Report: Jones Lang LaSalle, China Retail Investment Outlook 2012

BritCham / CBBC
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As China embarks on a mission to restructure its economy, domestic consumption will increase dramatically providing a whole range of new opportunities in China’s growing retail sector. Jones Lang LaSalle has released the China Investment Landscape 2012, Gearing up for Domestic Demand report, which provides an analysis of these growing opportunities.

The Executive Summary and a link to the full report can be found below.

Executive Summary

  • Investor appetite for the retail sector increased substantially in 2011; transaction volume totaled approximately RMB 26.5 billion while the sector accounted for 30% of total commercial real estate transaction volume. Both were record highs.
  • More than half of the investment capital was allocated to non-Tier I cities in 2011. This represents an unprecedented scale ofinvestment outside of the traditional Tier I cities.
  • On the buy side, Asian capital was the most active. In particular, Singapore-listed groups accounted for a third of total transaction volume in 2011 with Perennial China Retail Trust alone making RMB 6 billion1 worth of acquisitions.
  • Domestic groups were major sellers, accounting for 79% of total volumes. This is consistent with the trend of increasing investment capital flowing into non-Tier I cities as domestic groups own the bulk of retail assets in these locations.
  • Retailers cum retail property investors continued to be active; with significant acquisitions made by Tesco (in a joint venture with InfraRed NF China Real Estate Fund and Metro Holdings), Beijing Wangfujing Department Store and Parkson Group.
  • The shopping center format continued to gain popularity, especially evident in less mature lower tier cities. An overwhelming 86% of retail investment capital went to shopping centers. Interestingly, department stores were the dominant format in the lower tier cities as recent as just five years ago. While fundamentals on the demand side are rock-solid, some cities face risks from upcoming new supply in the next few years. Intensified competition is expected to separate the winners from the losers. Investors with the following characteristics will be best positioned to capture market share and fully capitalize on theeconomic restructuring theme: Comprehensive market-based asset management strategies that interweave leasing, marketing, promotions and property management plans that have been formulated from the outset, with flexibility factored in.
  • Those that can demonstrate real execution expertise or are partnered with co-investors with the necessary sector capability to execute such asset management plans.
  • Investment and research coverage extending to lower tier cities where the impact of pro-consumption measures are potentially higher.
  • Aligned with a medium-to-long term investment horizon.
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