Even Starbucks gets the China real estate blues; “If even Starbucks cannot afford it, how on earth could normal people pay for property in China?”

Even Starbucks gets the China real estate blues

Jun 21, 2013 5:46pm by beyondbrics

By Gu Yu and Kathrin Hille

China’s soaring property prices have been a problem for a long time. But this week, it was not the country’s nascent middle class complaining about rising rents. It was Starbucks. On Friday afternoon, the US coffee chain closed the coffee shop that had been its first in China. And if its staff is to be trusted, the reason was skyrocketing rent prices.

CBD No. 1, a shop on the ground floor of the Chinaworld shopping centre, at the heart of the Chinese capital’s central business district, within a stone’s throw from a major subway station and next door to one of Beijing’s oldest five star hotels, has been busy around the clock with white-collar workers and business people ever since it opened in 1999.

And yet, on Friday afternoon the shop invited loyal customers to celebrate with a last cup before closing its doors. According to a written statement Starbucks China provided to beyondbrics, the shop is moving to a newer part of the Chinaworld shopping mall to provide customers larger space and better decoration, and because the property management has its own plan for the vacated property.

But according to staff at the store, the shop is closing because of a rent hike. “One problem is that we are too profitable, and the property’s management want to squeeze extra money from this place,” one employee told the FT. “Our daily income is Rmb30,000, which only equals to a luxury bag’s price. Of course they want to sweep out our store. Our monthly rent is Rmb110,000, which is rather cheap. So the property management wanted more than we can afford.”

According to Chinese media, rent and wages for this particular Starbucks together cost more than US$1m a year.

To Beijing residents, none of this is a surprise. The government has turned to radical measures to curb the unbridled growth in property prices, including limiting the purchase of residential property to one apartment per household and to households with permanent household registration status.

But commercial property is much less regulated, and that has been pushing rental as well as sales prices in this segment on an even faster trajectory than residential property. According to Soufun.com, a Chinese online real estate portal, Beijing’s commercial property prices grew 22.83 per cent in May compared with the month before. This is far more than the 15.2 per cent month-on-month price increase seen in residential property.

Many Beijing residents expressed their nostalgia on Sina Weibo, China’s leading Twitter equivalent, about the closure of the first Starbucks shop in China. But one customer was more anxious than others. If even Starbucks cannot afford it, he wondered, how on earth could normal people pay for property in China?