Beijing Retail Real Estate Property overview 2011

Healthy Macro Economy Indicates Great Potential in the Retail Market. Positive performance of the overall economy enhanced consumer confidence, with retail sales up by 11% in May. Besides, the government is reported to plan to cut up to 15% of tariffs for luxury goods in China. Such a policy will stimulate the purchasing desire and fuel the retail demand.

Prime Retail Rental Remained Stable in the Second Quarter.

Wangfujing led the Beijing retail market with rentals reaching RMB2,200 per square meters a month (/sq.m./mo). As the new supply around it postponed their entering the market, Oriental Plaza and Beijing APM are still the leading malls in the Wangfujing submarket. The rental of Oriental even reached RMB2,600/sq.m./mo. Rents in the Xidan submarket remained stable at about RMB1,800/sq.m./mo. Zhongguancun Plaza, with a 25% vacancy rate, brought overall vacancy rate in the Zhongguancun submarket up, which will make rental increase unlikely. CBD and Sanlitunsaw stable rents in the second quarter of 2011.

Retail Demand Remains Stable, Brand Expansion is Steady. Compared to the elastic expansion after the financial crisis, retail demand remained stable in the second quarter of 2011. Although retailers showed strong demand at the beginning of the year, the prospect of large future supply entering the market has diluted the demand. At this stage, the success of one retail project depends largely on its strategic positioning and whether it has previous leasing experience. The significant transactions in the second quarter include Costa Coffee, Xihe Yayuan Roast Duck, GUESS, etc., which still demonstrates the further potential of Beijing’s retail market.

Intensive Supply will Enter the Market in the Second Half of 2011.

Over 500,000 sq.m of new supply will enter the market in the third quarter. Meanwhile, due to the leasing pressure and the conflict between strategic positioning and actual difficulty in leasing, nearly 100,000 sq.m. of gross
floor area of new supply has postponed its entry into the market in the first half of 2011. Assuming that it will enter the market in the second half of 2011, Professionals predict that there will be over 1.5 million sq.m. of new supply entering the market in 2011, which will bring down the overall retail rental and the absorption of new retail space will face great pressure. However, with the great potential in retail demand and the limited developments in key submarkets, the prime retail rents will remain stable.