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Retail Industry Expected to Drive China’s Economic Development

BritCham / CBBC
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The retail industry is expected to be a driving force of China’s economic development, and retail property rents in most Chinese cities will continue to increase according to CBRE’s latest report. Furthermore, China’s tier II cities are also expected to experience a stable increase in the entries of new retailers.

In 2012, despite a slowdown in the growth of consumer goods, both income and retail sales continued double-digit growth. “The Chinese retail industry is picking up and is expected to become the driving force in China’s economic growth,” Hongfei Chen, Director of Northern China, CBRE Research said. “Over the next few years, the maturing retail property market will benefit retailers with a greater availability of options. However, existing retailers will also face intense competition from international brands and online shops, as well as ongoing increases in operational costs such as rent and labor.”

Retail property average rents in most Chinese cities are expected to increase steadily due to the limited availability of prime retail space, according to Beijing Retail Market Report. In Beijing the prime retail market has been experiencing steady growth since 2003, where the prime retail rent reached RMB 40.8 per sqm per day in Q1 2013, up by 2.6% q-o-q on a like for like bases. In Q1 2013, a new supply of 185,000 sqm was recorded in the Beijing’s retail property market, with a take-up of 201,443 sqm, driving down the vacancy rate by 0.5 percentage point q-o-q.

The vacancy rate of the overall market is expected to continue declining in the future. A steady increase of new retailer entries has also been witnessed in China’s tier II cities. Chengdu, Hangzhou, and Wuhan are firmly on the radar of international retailers that are already established in Beijing, Guangzhou and Shanghai, according to the report. “The main second-tier cities are developing their retail property markets faster than the relatively mature first-tier cities,” Helena Wang, Director of Retail Services, Northern China, CBRE said.

“Retail properties in the core areas of Beijing and Shanghai are most preferred, but some international retailers entering the China market for first time are also looking at cities in Western China including Chengdu and Chongqing. Generally, international retailer chains intend to select retail properties with a mature operating environment or international business background,” Helena continued.

Sebastian Skiff, Executive Director of Retail Services, CBRE Asia, said: “In recent years, the growth of Asia’s retail industry has been impressive. Sentiment from international and domestic chain retailers to invest in China and Asia remains positive, despite uncertainties with the global economy.

“Given the young demographics of Asia and their propensity to use technology to increase their fashion knowledge, along with the growing buying power of the emerging middle class, we are seeing an increased demand for mid-range stylish fashion. This represents a significant opportunity for more affordable brands across the region, especially in China, with Beijing an important market for any retailer,” Sebastian commented.

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