Savills Research China

Asian Cities Report Beijing Retail

2H 2012

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Asian Cities Report | Beijing Retail

GRAPH 1

Beijing retail sales, Q1/2006Q2/2012

Retail sales (LHS) 200 180 160 140 RMB billion 120 100 80 60 40 20 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2006 2007 2008 2009 2010 2011 2012

Economic overview
Retail sales in Beijing reached RMB365.2 billion in 1H/2012, after having registered a nominal compound annual growth rate (CAGR) of 16% between 2007 and 2011. This growth was supported by strong economic expansion and rising disposable incomes.

Nominal YoY growth rate (RHS) 25% 23% 20% 18% 15% 13% 10% 8% 5% 3% 0%

of 1H/2012, compared with Shanghais stock of roughly 6.96 million sq m. Of Beijings mid- to high-end retail stock, only 36.6% is accounted for by department stores and the rest are shopping centres. Supply averaged 557,000 sq m per annum between 2000 and 2011. During this time, the market experienced two surges in supply; first in 2008, which coincided with the Olympic Games; and again in 2010, which was largely attributed to the completions of several projects which were postponed due to the global financial crisis. Catering to the growing demands of both local consumers and domestic and international retailers, shopping centres represent an increasing portion of new retail supply. As downtown areas are already fairly mature, supply pressure has been, and is expected to continue to be, focused on more suburban locations.

Market overview
Prior to 2007, Beijings retail market was largely composed of department stores, managed by both domestic and international operators. Over the past few years, however, shopping centres have become increasingly common and now dominate the market. Beijings retail market can be principally subdivided into traditional, Grade A and Grade B retail precincts. Traditional precincts include Wangfujing (WFJ), Xidan and Qianmen. They cater to tourists and local residents, and are dominated by both domestic and international fashion and F&B retailers. Grade A precincts include the CBD, Lufthansa, Sanlitun and Beijing Financial Street (BFS) and target expatriates and white-collar workers, and are thereby populated by high-end fast-fashion brands, F&B outlets and entertainment retailers.

Source: Savills Research & Consultancy

MAP 1

Major retail catchments

Demand
Beijing has traditionally been viewed as an essential destination for domestic retailers looking to establish a name for themselves, as well as international retailers looking to tap the China market. This is not only due to the wealth within the city, but also the fact that the locals are some of the most brand-conscious consumers on the mainland, and therefore help to set trends for the rest of the country. Starting in the 1990s, luxury retailers, such as Louis Vuitton, Gucci, Burberry, Chanel and Cartier, established themselves in the capital city, primarily in the CBD, Lufthansa and WFJ areas. While high-end retailers continue to expand in the market, fast-fashion retailers, such as Zara, H&M, Uniqlo, C&A and Gap, began to enter the market after 2006. Their interest in the market was in response to the growing middle-class, a trend seen across many of Chinas cities. While the global financial crisis caused a number of international retailers to slow their expansion plans,

Source: Savills Research & Consultancy

GRAPH 2

Mid- to high-end retail supply and stock, 20002013E

Supply (LHS) 2.0 1.8 1.6 1.4 million sq m 1.2 1.0 0.8 0.6 0.4 Stock (RHS) 10 9 8 7 6 5 4 3 2 million sq m

Grade B precincts include areas primarily located around residential communities and/or transportation hubs. They cater to nearby residents and subsequently mostly comprise hypermarkets, services, F&B and entertainment operators. There are obviously retail developments in other areas, although these retail premises remain too small and scattered to generate any significant impact on the wider market. Most of this development has occurred around residential communities and/or Metro stations, such as Shilipu, Wanliu, and the North Third Ring Road area.

1H

0.2 0.0

1 0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E

Supply
Beijings mid- to high-end retail stock reached 8.12 million sq m by the end

Source: Savills Research & Consultancy

02

2H 2012

Chinas rapid economic recovery, and subsequent rising retail sales, reassured them of the positive long-term prospects of the market. In 2011, retailers renewed their expansion plans, particularly high-end fashion brands, jewellers, automotive companies and F&B retailers. In addition to the expansion of existing retailers, Beijing continues to see new entrants to the market. These have recently included Lanvin, Vivienne Westwood, Christian Louboutin and Hollister. In response to growing demand, mid- to high-end shopping centre occupancy rates have remained relatively stable during the past four years, ending Q2/2012 at 89.4%. More established areas such as WFJ, Xidan and Sanlitun, as well as areas surrounded by residential communities including Dongzhimen, Xizhimen and Wangjing, remain the priority locations for retailers. As such, projects in these locations register some of the highest occupancy rates in the city.

more susceptible to wider changes in market conditions.

TABLE 1

Outlook
Aside from Xinao Shopping Centre and Indigo two shopping malls with retail GFAs of 240,000 sq m and 86,000 sq m respectively, which opened in 1H/2012 ten additional projects are expected to be handed over to the market in 2012, representing roughly 876,000 sq m. Supply pressure is set to persist as new construction is expected to average around 742,000 sq m per annum between 2012 and 2014, compared with 970,000 sq m per annum in the previous three years. Over 70% of the new supply is shopping centres, approximately half of which are located in traditional, Grade A and Grade B catchments, while the other half is accounted for in emerging and as yet undefined retail areas. Given considerable upcoming supply, city-wide occupancy rates are likely to increase. Nevertheless, projects expected to be handed over in 2012 in prime catchments and which will account for about half the years supply have already achieved healthy pre-commitment rates. Vacancy rates in prime areas, therefore, will likely remain stable. Such demand has come from both the continued expansion of international retailers and new entrants. Retailers such as Gap, Givenchy and Flanders have pre-committed space in the upcoming projects. Meanwhile, new brands such as Roger Vivier and Just Cavalli have confirmed the opening of their first stores. Going forward, prime locations are expected to maintain rents at current levels or record upward movement as new entrants continue to look for core flagship store locations. In emerging retail locations, however, landlords will have to rely more heavily on turnover rents rather than base rents, as retailers will be hesitant to commit to untested locations when there are many other options available to them.

Recent major leasing transactions, 2011 1H/2012

Tenant Joyce Lane Crawford Forever 21 UTT Miu Miu Gap Page One Dior & Dior Homme Lanvin Chanel Project China World Mall III Park Life Shopping Centre Beijing APM The Place The Village at Sanlitun (North) CARE City Centre China World Mall III Shin Kong Place The Village at Sanlitun (North) The Peninsular Beijing Retail area CBD CBD WFJ CBD Sanlitun Others CBD CBD Sanlitun WFJ Leased area (sq m) 2,000 2,000 2,000 1,500 1,200 1,000 960 800 596 460 Trade Fashion Department store Fashion Fashion Luxury Fashion Entertainment Luxury Luxury Luxury

Source: Savills Research & Consultancy

GRAPH 3

Mid- to high-end shopping mall first-floor rents, Q1/2005Q2/2012

900 850 RMB per sq m per month 800 750 700 650 600 550 500 -5% 0% 5% 10% Rent (LHS) Rental growth (RHS) 15%

Rents
Mid- to high-end shopping centre firstfloor rents ended Q2/2012 at around RMB859.8 per sq m per month. Rental appreciation registered a CAGR of roughly 3.3% over the past five years, despite a substantial volume of supply during that period. Rents peaked in 2008 as international retailers were quick to enter the market before the 2008 Beijing Summer Olympics. While the global financial crisis which coincided with an uptick in supply pressure caused landlords to lower rents in an attempt to remain competitive, economic recovery and thus strong demand caused rents to rebound in 2010. Average rents have now surpassed pre-crisis highs. Traditional catchments command the highest rents in the city, at roughly RMB1,280 per sq m per month. Meanwhile, Grade A and Grade B retail districts command average rents of RMB971 and RMB744 per sq m per month respectively, and are much

Q1 Q3 2005

Q1 Q3 2006

Q1 Q3 2007

Q1 Q3 2008

Q1 Q3 2009

Q1 Q3 2010

Q1 Q3 2011

Q1 2012

Source: Savills Research & Consultancy

TABLE 2

Retail supply, 2H/2012

Project Seasons Place Phase II Greenland Shopping Centre Spot on WFJ CapitaMall Taiyanggong Gemdale Plaza Parkview Green Charter Shopping Center Beijing BHG Tun San Li Yong Li Mall Beijing Palace WFJ Department Store Retail GFA (sq m) 23,000 80,000 38,000 90,000 20,000 54,000 340,000 55,000 46,000 130,000 Retail area BFS Others WFJ Lufthansa CBD CBD Others Sanlitun WFJ Others

Source: Savills Research & Consultancy

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