Healthy growth ahead for China malls

China’s shopping mall industry is likely to see a healthier growth in the second half of the year, says real estate services firm Jones Lange LaSalle.

“The slowdown of consumer sales we saw last year seems to be receding, and we expect confidence to pick up,” says Steven McCord, local director, China retail research, Jones Lang LaSalle in Shanghai.

“Policymakers are serious about promoting consumerism to play a stronger part in overall economic growth, and this should have a positive impact.”

The total number of new shopping malls is likely to reach a new high this year, with around 150 new malls opening in the top 20 markets.

Jones Lang LaSalle’s research shows that mall sizes are also increasing. The average size of a new mall will exceed 80,000 sqm.

In Shanghai, for example, Global Harbour opening in 2013 will offer a total of 320,000 sqm, with shop space of around 40,000-50,000 sqm per floor.

Another large mall expected to open soon is IAPM by Sun Hung Kai, totaling 120,000 sqm.

“We expect to see up to 3 million sqm of new retail space in the next three years in Shanghai, and maybe 3 to 4 million sqm in Chengdu,” says Eugene Tang.

“In addition, emerging cities, such as Jinan, Hefei, Kunming and Changzhou, are adding large quantities of retail real estate. This trend is likely to continue in third and fourth tier cities in the next few years.”

Today, retailers have more location choices than ever before and making informed choices when selecting a site has become essential, finds Jones Lang LaSalle.

However, challenges for shopping malls remain. To respond to the complex challenges in the market environment, shopping malls need to refine their business models.

With so many new malls opening, the competition to attract high-caliber retailers is fierce. Competition between malls is also placing managers under greater pressure to differentiate their properties in terms of design and traffic flow, tenant mix, theme, customer base and market positioning. This means high quality retail asset management goes a long way to stand out from the crowd.

At the same time, an unpredictable new challenge is emerging: the growth of online retail.

E-commerce does not mean the end of the shopping mall in China. However, the rise of e-commerce has limited the opportunities in the mass retail market, especially in the weakly branded brick-and-mortar fashion segment, because price sensitive consumers buy online at lower prices. As a result, mall operators are seeking ways to inoculate themselves against the rise of e-commerce.

Shopping malls can adjust their tenant mix to prioritize F&B, entertainment and other services that cannot go online, but which drive foot traffic and add to the mall experience. These non-traditional retail elements have increased from an average of 30 per cent of the occupied space to 33 per cent in the last two years in the Shanghai decentralised market. Among newly opened shopping centres, they can account for as much as 45 per cent of store space.

“Non-traditional retail elements, such as F&B, entertainment and other services, are increasingly important to the tenant mix,” says McCord.

“Some mall owners are making it a strategic priority to have as much as 60-70 per cent of space dedicated to food and beverage and entertainment, such as movie theaters, game arcades and karaoke. They also put in a lot of service-oriented tenants such as early education centers, English schools, and weight-loss clinics. This is excellent from a foot traffic generation perspective. These are all things that can’t go online.”

The food and entertainment focus goes hand in hand with the trend towards “lifestyle centers”. 1891 mall on the Yangtze riverfront in Chongqing and SOHO Fuxing Plaza in Shanghai are just two new examples among many new F&B-centric retail developments.

Decentralised malls in residential areas are also emphasising more services tenants; Sky Mall in Minhang district, Shanghai is a good example.

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