DTZ China Retail Investment Ranking 2011

23 June, 2011

  • Beijing ranks top while Shanghai follows in DTZ’s attractiveness ranking of 18 mainland Chinese cities in terms of high-end retail investment
  • Prominent second-tier cities, such as Chongqing and Chengdu show strong retail investment prospects ranking third and fourth
  • Expected retails sales growth, rise in disposable income, continued urbanisation, and a focus on encouraging greater domestic demand, will help unlock the untapped potential across Chinese high-end retail investment markets

Beijing ranks top in DTZ’s first ranking of high-end retail investment opportunities in mainland China.  This is based on current consumer affluence (retail sales per urban capita in 2009), average retail space per urban capita, sales growth forecast over the next five years and market sentiment. The DTZ Research China Insight – China Retail May 2011 report shows that the city outperforms other markets in projected sales growth, with an annual growth rate of 11.4% for the next five years. This is supported by the fact that the Chinese capital attracts a huge amount of tourists and business travellers and has a very high brand penetration. The launch of new retail space, such as China World Trade Center Phase III, will enhance and bring more competition to Beijing’s high-end market.

Relevant retail investment to China investors

The Chinese retail sector has become increasingly relevant to investors, as investment has grown by 25% per annum over the last decade. The key question for many investors and developers is where to invest in the emerging high-end retail markets. DTZ’s analysis of 18 mainland Chinese cities considers which city level markets investors and developers should target for their portfolio expansion in the next growth phase of the high-end retail markets across mainland China, based on consumer affluence, the opportunity to develop more retail space, retail sales growth and market sentiment.

With average growth between 2010 and 2019 forecast to be 8.6%, robust GDP growth will result in a strong increase in disposable income and consumer confidence. And yet, much of the disposable income of the Chinese public has not contributed to consumption. Among the world's major economies, China still has the lowest domestic consumption as a percentage of GDP (35% in 2009), whereas China's savings rate in 2009 was around 51%, the highest when compared with the same countries.

Shaun Brodie comments

Shaun Brodie, DTZ's Head of Research, East China, commented: "As China targets diversification of its economic base by encouraging greater domestic demand, we believe this will propel the domestic consumption as a percentage of GDP to around 55% by 2020. This is expected to provide a strong momentum for retail markets in China in the future."

High-end retail property is defined to include shopping centres and department stores whose specifications and management are of a high quality and which attract luxury retail brands. Driven by strong economic growth and a rising living standard, China will continue to experience a wave of urbanisation with a massive movement of people from rural to urban areas and from small towns to large cities. This change, together with new infrastructure development will also bring about higher retail sales in many first and second-tier city markets.

Shanghai is second in the DTZ Research ranking. It has a mature high-end retail market, and the launch of new city hubs, new transportation infrastructure and new tourist attractions will bring in more travellers and bode well for retailing in the city. Given the strong consumer demand, Shanghai’s retail rental will continue to grow while occupancy is expected to soften due to the amount of expected new supply. Guangzhou, another first-tier city like Shanghai, is in fifth place, due to it being an important manufacturing centre in the Pearl River Delta that drives the city’s economy (with the highest annual GDP growth rate out of the four first-tier cities in 2009).

On the other hand, Chongqing and Chengdu are the highest ranking second-tier cities, at third and fourth respectively. Chongqing benefits from having the largest population of any Chinese city, and Chengdu is the most popular choice for retailers to open their first store in western China. Both cities are expected to display an upward retail rental and occupancy rate trend in future. Other notable second-tier cities are Shenyang and Wuhan, as increased urbanisation and improved connectivity will help foster their respective retail markets.

David Ji, DTZ’s Head of Research, Greater China, concluded: “The amount of capital available for investment in Asia Pacific, particularly in China, has increased more than for any other region, as described in the latest DTZ Insight – Great Wall of Money report. More investment funds and developers, including traditional residential developers, are showing greater interest in developing retail. Given the upward prospects in China's growth in GDP, retail sales and disposable income, and the increasing urbanisation and improving infrastructure, the amount of investment in the retail sector will remain strong for some time to come."

Table: Top 5 DTZ Ranking of China Retail Investment Opportunities

Ranking

City

1.

Beijing

2.

Shanghai

3

Chongqing.

4.

Chengdu

5.

Guangzhou

 


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