The continuing growth of online retail sales and corresponding threat to spend in physical retail malls appears to be the standout ‘nightmare’ for senior real estate developers in China.

Broadway Malyan-commissioned research reveals the following concerns among China-based development leaders and development-focused real estate and property professionals.

‘Nightmares’ – issues that keep developers awake at night:

1. The continuing growth of online retail sales and threat to spend in physical retail malls (83 per cent).
2. The lack of good market, demographics and consumer spend research to aid planning retail development in tier two, three and lower city locations (75 per cent).
3. The lack of new and differentiated consumer brands (63 per cent).
4. The increasing vacancy rates in shopping malls in tier two and three cities (63 per cent).
5. The broad slowdown in the economy and drawn-out ‘soft landing’ (58 per cent).
6. Current land policies and speculation driving valuations beyond realisable levels in the foreseeable future (58 per cent).

Other concerns are the challenges posed by the move towards retail-led mixed-use development, away from the emphasis on residential-led schemes (54 per cent), lack of understanding about the commercialisation and leasing infrastructure processes due to the lack of maturity of the retail industry (54 per cent), slowing expansion plans on the part of luxury brands (50 per cent) and the residential ‘bubble’ and long term effect on the ability of government to curb inflationary pressures across the property sector (42 per cent).

On the positive side, developers have also ‘sweet dreams’ which include:

‘Sweet dreams’ – issues that help developers sleep at night:

1. The desire and even craving on the part of customers for new, innovative and enjoyable retail experiences (88 per cent).
2. The newly appointed next-generation central government’s commitment to the internal market and promotion of domestic consumption (83 per cent).
3. The continued focus on China on the part of international retailers and their associated expansion plans and general long-term commitment e.g. food and beverage chains (75 per cent).
4. The increasing creation of new central business zones and supporting infrastructure by local government and associated sustainable development opportunities (67 per cent).
5. The pace of change and growth in home-grown brands and their move to premium locations (63 per cent).
6. The opportunities presented by the move towards retail-led mixed-use development (63 per cent).

Other positives are the release of land by local government for urbanisation and development (46 per cent) and the international growth potential of ‘brand China’ and knock-on boost in confidence for the home market (38 per cent).

Respondents were also asked an open question about the common aspects of the China retail experience and evolving retail sectors in other emerging economies such as India and Brazil.

Similarities referenced include the huge potential afforded by the markets, their large populations, growing middle classes, strong desire for development and growing consumer demand, as well as the increasing economic strength, maturity and sophistication of consumers and brand awareness, and the opportunity for creativity in the face of increasing consumer expectation.

However, the uncertainties faced by major retailers considering inward investment were also mentioned as similarities, as were the disparities in consumption across regions and between cities within countries.

Differences highlighted included suggestions that China is witnessing faster increases in domestic consumption and market transparency, the country is more evolved in terms of infrastructure and transportation and benefits from greater demand for high-end and luxury goods, as well as family-centred consumption.

However, it was also suggested that faster development in China has resulted in the country seeing more substandard development, in terms of design and quality, as well as higher labour costs.

“The principal concerns resonate with many markets across the world and the emphasis placed on the threat of online shopping is evidenced in China by the recent closure and market exit of some key international brands,” said Broadway Malyan practice director Jeremy Salmon.

“The domestic market in China has come a long way very quickly and really evolved over the last three years. This represents a real challenge to all those in the industry and new marketing and commercial innovation is needed to reconnect income streams to real estate overheads.”