Lina Wong, Managing Director of East and Southwest China and China Investment Services at Colliers International, said, “In 2011, the effect of the control measures has started to take hold. We don’t believe such measures will ease in 2012, as lifting curbs at this phase could possibly result in retaliatory rebound. We expect the overall residential market may experience a setback of 15% to 20%, while the commercial sector, especially retail properties, will attract more investors in the future due to its high return on investment.”
According to the report, Shanghai’s retail investment market was active in the fourth quarter of 2011. One of the most impressive transactions was CapitaMalls’ acquisition of a 50% equity share in CapitaMalls Hongkou Plaza and CapitaMalls Minhang Plaza projects for RMB4.2 billion. In addition, Jin Lin Tian Di, a high-end retail property on Xintiandi’s Madang Road with a total gross floor area of 3,167 square meters, was also transacted during the period.
On the rental front, average rental rates for ground floor retail space in prime areas rose to RMB51.2 / sq m / day in the fourth quarter, hitting a five-year record high despite increasing vacancy rates. Meanwhile, the overall vacancy rate in Shanghai’s retail property market rose from the previous quarter’s 9.0% to 9.9% following the addition of 251,676 sq m of new supply from three large projects during the fourth quarter.
The report notes the rise of Shanghai’s decentralized areas in the fourth quarter. As the expansion of Shanghai’s metro system makes decentralized areas ever more convenient, both retailers and customers are being increasingly attracted to areas outside the traditional city center. This shift is reflected by a quarter on quarter drop in the vacancy rate from Q3’s 8% to Q4’s 6%. In contrast, vacancy rates in the prime and inner-ring areas rose during the same period.
In 2012, 850,556 square meters of new supply is expected to launch, including APM on Huaihai Road Middle and L’Avenue in Hongqiao CBD. Asked about the market outlook, Wong commented, “The significant increase in total stock of retail property in 2012 will raise vacancy rates in the short term, driving more competition in both leasing and investment markets. But bolstered by robust demand from retailers domestic and abroad, average rental rates in shopping malls will keep going up steadily. And developers seem to have full confidence in the market dynamic. Judging from all these factors, Colliers thinks retail properties will be an investment hit in the New Year.”
