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Shanghai Retail Market Report Q4 2016

New Retail Supply Surged In Q4

In the fourth quarter (Q4) of 2016, nine retail projects officially or soft opened, adding a total retail space of 815,323 sqm (see Table 1) to Shanghai’s retail market.

In Q4, retail consumer demand was boosted by the traditional National Day holiday as well as the 11.11 and 12.12 online shopping festivals. However, the growth rate of retail sales actually slowed down.

Prime ground floor retail rents in Shanghai decreased 1.3% quarter on quarter (Q-o-Q) to RMB55 per sqm per day (see Table 1). The overall vacancy rate increased a further 0.8 percentage point Q-o-Q to 12.2% (see Table 1).

The retail property investment market saw improved sales volumes with three en-bloc retail deals were sealed in Q4. COFCO Joy City bought Parkside Plaza in the Putuo Changfeng area from Grosvenor for RMB2.2 billion. In Q4, Rich Gate’s shops in Xintiandi and Xuebao Building in Huaihai Middle Road were acquired by CLSA Asia-Pacific Markets and Blackstone Group respectively for RMB1.35 billion and MB680 million respectively.

The biggest en-bloc transaction of 2016 was sealed in Q4. An insurance company acquired the office and retail complex project, Century Link from Cheung Kong Property Holdings Limited for RMB20 billion. Located in Century Avenue Pudong, Century Link was just completed in Q4.

Looking forward to 2017, the amount of new retail supply will remain huge and the oversupply situation will continue. 2017 will see the opening of over 30 retail malls, providing a total retail space of over 3.5 million sqm.

Due to the huge amount of future supply, the retail property market will face challenges with retail rents growing only around 3% and the overall vacancy rate of shopping malls will reach over 10% in 2017. However, many landlords will delay and avoid opening malls during the traditional low season in the first quarter, in particular during the Chinese Spring Festival period.

In addition, the growth rate of online retail sales, which has huge impact on brick and mortar stores, will slow down due to the economic downturn and slowing growth of retail sales.

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Content provided by Knight Frank
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