GLOBAL CITIES RETAIL GUIDE

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China however, is not far behind, with 145 million online shoppers. The Chinese government has heavily subsidized the ro
RETAIL SERVICES

GLOBAL CITIES RETAIL GUIDE

CUSHMAN & WAKEFIELD

CUSHMAN & WAKEFIELD 2012/2013

china

Global Cities Retail guide

china Overview

Photo / trioptikmal on Flickr

The People’s Republic of China (commonly known as China or the PRC) is located in east Asia.

A decade of strong economic growth, rising household incomes, and rapid urbanization coupled with government initiatives aimed at boosting domestic consumption have fueled rapid growth in China’s retail sector. With international brands overwhelmingly positive about China’s potential as a retail market, China is becoming key to business strategies of many global retailers. For many retailers, China is a must-win market and according to WLA (World Luxury Association) it is now the world’s second largest luxury market.

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Global Cities Retail guide

china Economic Overview

Photo / HBarrison on Flickr

economic summary

economic breakdown

ECONOMIC INDICATORS*

2009

2010

2011F

2012F

2013F

Population

1.347 billion (2011)

GDP growth

8.7

10.3

9.2

/

/

GDP

47.16 Trillion RMB (2011)

Consumer spending

9.1

9.8

/

/

/

Public sector balance

N/A

Manufacturing production

9.5

12.2

10.6

/

/

Governing Party

Communist Party of China

Investment

30.1

23.8

23.6

/

/

Head of State

Hu Jintao

Unemployment rate (%)

4.3

4.1

4.1

/

/

Prime Minister

Wen Jiabao

Inflation

-0.7

3.3

5.4

/

/

Election date

Mar 2013

RMB/€ (average)

9.80

8.81

8.16

/

/

retail sales growth: % change on previous year

RMB/US$ (average)

6.82

6.63

6.30

/

/

china

2009

2010

2011

2012F

2013F

Interest rates 3-month (%)

1.7

2.3

3.1

/

/

Retail Volume

15.54%

18.30%

17.05%

16.53%

17.56%

Interest rates 5-year (%)

3.6

4.6

5.5

/

/

Retail Value

1.59%

6.57%

6.47%

4.02%

7.23%

Note: *annual % growth rate unless otherwise indicated. E estimate F forecast Source: Statistics Bureau, Views Wire and Roubini Global Economics

Source: Oxford Economics Group

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Global Cities Retail guide

china Largest cities largest cities (2010) CITY

POPULATION

Beijing

20,186,000

Shanghai

23,474,600

Tianjin

13,545,800

Chongqing

29,190,000

Hangzhou

8,738,000

Xi’an

8,513,400

Wuhan

10,020,000

Harbin

9,933,000

Jinan

6,885,100

Chengdu

14,040,000

Guangzhou

12,700,000

Shenzhen

10,350,000

Shenyang

8,100,000

Dalian

6,690,000

Photo / sanfamedia.com CUSHMAN & WAKEFIELD

Global Cities Retail guide

china Retail Scene MAJOR FOOD RETAILERS ACTIVE IN CHINA

Data as of April 2012

Vanguard, Carrefour, Walmart, Trust Mart, Tesco, Ren Ren Le, RT-Mart.

MAJOR DOMESTIC NON-FOOD RETAILERS Gome Consumer Electronics, Suning Consumer Electronics, Brilliance, Dashang, Parkson, Metersbonwe, Septwolves

INTERNATIONAL RETAILERS IN CHINA (A SELECTION) Eland Group, Ikea, Bestseller, Inditex Group (Zara, Bershka, Pull & Bear etc), Mango, H&M, Basic House, Sephora, VF Corporation, Nike, Adidas, Apple

FOOD & BEVERAGE OPERATORS YUM! (KFC, Pizza Hut); Little Sheep; Costa Coffee, Starbucks, McDonalds, Burger King, AJisen Ramen, Kung Fu, Goubuli Baozi, Honeymoon Dessert, Quanjude Roast Duck, Dairy Queen, Subway

TYPICAL HOURS MONDAY - thursday

friday – SUNDAY

10:00 am – 10:00 pm

10:00 am – 10:30 pm

Applied to shopping malls during normal operation hours. There are some minor regional and seasonal variations in opening times.

Photo / maltman23 on Flickr CUSHMAN & WAKEFIELD

Global Cities Retail guide

china Retail Scene Prime retail stock, defined as shopping malls and department stores in selected city center submarkets, in 18 tier-1 and tier-2 cities, now totals 48 million square meters. While Beijing and Shanghai currently have around 4.1 million and 3.9 million sq.m of space respectively, many tier-2 have around two million square meters of prime retail stock. Almost all major cities have a very strong pipeline of supply and some cities will see a doubling of stock in just 2-3 years.

Data as of April 2012

Throughout China, developers are becoming more conscious of growingly sophisticated consumers along with the consumer experience they demand. As such many developers are designing their projects so as to deliver a leisure experience. Meanwhile, department stores are seeing something of a convergence with shopping centers, with operators including Sogo, Renhe Spring and Galeries Lafayette seeking to allow brands greater exposure for brand marketing, and incorporating comprehensive entertainment and F&B elements. As for e-commerce, according to Boston Consulting Group, with approximately 170 million online bargain consumers, United States is the world’s No.1 market. China however, is not far behind, with 145 million online shoppers. The Chinese government has heavily subsidized the rollout of high-speed access, thus internet penetration now approaches levels characteristic of developed countries. China could potentially become the world’s most valuable e-commerce market within just a few years. With challenging trading conditions in western economies, many luxury and “Fast Fashion” brands have focused significant attention on the Chinese market. Major luxury corporations such as PPR and LVMH reported strong sales growth in Asia, and notably in China. According to the WLA (World Luxury Association) China’s 2011 luxury goods sales growth is estimated at a white-hot 25%-30%, outstripping overall market growth. Fast fashion brands were also active with established brands such as Zara and H&M opening 20-30 stores each in 2011, while more recent market entrants such as Gap have laid out ambitious plans for expansion. Several new large-format fashion brands that are popular in Europe are now inspecting the China market, while highly anticipated new brands including A&F, Forever 21 and Disney Store are expected to open in the coming 12 months. With strong economic fundamentals, rising incomes across-the-board and a steadily growing base of brand-conscious consumers, retailers across the board are likely to accelerate their expansion in the Chinese market.

Photo / maltman23 on Flickr

new entrants to the market Gap

Hollister California

Abercrombie & Fitch

iROO

American Eagle Outfitters

Hysek

Moussy Forever 21

Azul by Moussy Tory Burch

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Global Cities Retail guide

china Key Features of Lease Structure KEY FEATURES OF LEASE STRUCTURE Lease Terms

2 to 3 years for most smaller tenants in shopping malls 5 years or longer for F&B tenants in shopping malls Up to 15 years for fashion anchors Up to 20 years for hypermarkets

Rental Payment

In street shop locations rents are typically base rent only, in department stores a percentage of sales only is payable, while in shopping malls the emerging standard is to pay the higher of base rent or a percentage of sales.

Rent Review

Basis of the rent review is open market rental value, and the frequency is negotiable.

Service Charges, Repairs and Insurance

Tenant is typically responsible for maintenance within their own premises. Landlord is responsible for maintenance of common areas and this is charged back through a management fee which is typically RMB 70-100 per sq.m per month for shopping malls in Shanghai and Beijing. An additional promotion fee may also be charged. Landlord is also responsible for the external and structural maintenance of the property. Tenant is often required to take out insurance for fire and 3rd party liability.

Property Taxes and other costs

Landlords bear all property related taxes such as Urban Real Estate Tax, business tax for rental income. Landlords and tenants normally share the stamp duty cost, which is minimal.

Disposal of a Lease

Assignment / Sub-letting is typically not allowed. And early termination is by negotiation only, however non performing tenants often negotiate early termination. About the Tenant’s Building Reinstatement Responsibilities at Lease End, typically is original condition, however many landlords willing to negotiate at the time of withdrawal.

Valuation Methods

Retail valuation methodologies are not very well established however international methodologies such as RICS are increasingly recognized.

Legislation

Guangzhou and Shanghai have standard leases but Beijing and most other Chinese cities do not. The standard leases can be adapted by means of supplementary clauses.

CUSHMAN & WAKEFIELD

Global Cities Retail guide

JOHN STRACHAN

MATT WINN

SANJAY VERMA

Global - EMEA Ph: +44 20 7152 5090 43-45 Portman Square London, England W1A 3BG [email protected]

Americas Ph: +1 404-853-5309 55 Ivan Allen Jr. Boulevard, Suite 700 Atlanta, GA 30308 [email protected]

Asia Pacific Ph: +86 21-2320 0888 26/F The Headquarter Building 168 Xizang Zhong Lu Shanghai, China 200001 PRCi [email protected]

www.cushmanwakefield.com

No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. © 2012 Cushman & Wakefield, Inc. All rights reserved. CUSHMAN & WAKEFIELD