Glut of shopping malls in China could create realty bubble
July 12, 2013 Leave a comment
Glut of shopping malls in China could create realty bubble
Staff Reporter
2013-07-11
Compared with the residential market, the commercial real estate market is more likely to face bubbles, a vice chairman of a Hong Kong-listed realty firm has told Shanghai’s First Financial Daily. According to real estate services company DTZ, the total floor area for new shopping malls slated to open in Shanghai during the second half of this year will reach 2.49 million square meters. In comparison, the total floor area of retail property transactions from the year 2000 to June 2013 was pegged at 10.9 million square meters.As of 2011, there were 2,812 shopping malls in China. By 2015, the number will grow to 4,000, according to the China Chain Store and Franchise Association.
The commercial real-estate market is a fierce battleground for foreign investors, state-run enterprises and domestic private developers.
Cora Guidote, SM Investment’s vice president for investor relations, stated, “we believe that as Chinese people’s disposable income increases, the retail business will also rise, and the Chinese government’s policy to expand domestic demand will also benefit the retail business.”
“By 2015, SM will operate seven shopping malls in China. We will consider listing on the stock market in China, Hong Kong or Singapore,” Guidote added.
SM’s point of view reflects that of many foreign investors. However, Vernon Martin, founder of American Property Research, termed the ideas of some foreign investors as “naive.”
“China’s economic miracle is exaggerated,” he said, adding that China’s consumption-to-GDP ratio is on an obvious decline, compared with a decade ago and that market demand is not strong enough to support the shopping mall boom.
James Hawkey, managing director of Cushman & Wakefield’s retail services for the Asia-Pacific, pointed out that commercial land supply was largely decided by each city’s urban planning bureau, hinting that the oversupply of shopping malls might be connected to government policy.
Situations like declining consumer flows in shopping malls and stores having difficulty staying in business have been observed in many cities this year, Hawkey said. “We believe such situations will be more common in the country next year. There will be a glut of malls,” he added.
According to a research by Cushman & Wakefield, the vacancy rate at shopping malls in first-tier cities was around 10%, while the rate rose to 15 to 20% in malls in second-tier cites such as Chongqing, Qingdao and Xiamen.
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