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Shanghai, Beijing and Hangzhou have been ranked as the best markets for retail investment, according to the latest research from CBRE.
The research comes from MarketScore: the Key to Investing in the China Retail Market, a special report that analysed retail property investment opportunities in 17 major cities in China.
The study found that Shanghai, Beijing and Hangzhou currently offer the brightest prospects for retail real estate investors, but further advises investors to exercise caution when considering opportunities in China’s second-tier cities such as Shenyang and Wuxi.
The new report, which follows an earlier CBRE MarketScore report released in January focusing on the China office property market, analysed the 17 city markets in terms of 14 key indicators that influence the retail property market performance.
CBRE noted that a MarketScore ranking reflects the overall investment conditions for a given city. An excellent quality retail property in a city with a low MarketScore ranking may therefore still merit consideration, while an average quality property in a city with a high MarketScore ranking is not necessarily a good investment.
Shanghai’s retail property market, which ranked top, currently exhibits both strong supply and strong demand. Retail rents in the city have been increasing at a steady pace, with rents in central areas increasing at a CAGR of about 7.9 percent and vacancy rates remaining well below 10 percent.
Beijing likewise holds significant potential for retail property investors. The capital city ranks highest in the nation in terms of overall retail consumption, with spending on high-end goods accounting for a considerable proportion.
Additionally, the retail stock in Beijing is relatively dispersed, with only 20 percent of it located in central hubs such as Xidan, Wangfujing and CBD areas, and the remaining 80 percent distributed among a range of secondary sub-markets. With land in short supply within the city’s five ring roads and new regulations prohibiting the construction of large-scale public projects in core areas, the Beijing retail market is expected to continue evolving in decentralized fashion.
Second-ranked Beijing holds strong attraction for international retailers, who are entering the city market at increasing speed. CBRE research has revealed that in 2013 alone 34 new international brands entered Beijing, more than three times the number for 2012.
Tight supply is the most salient feature of the Hangzhou market presently. The city has a relatively small stock of retail space and very low vacancy rates. As of Q2 2014, supply of high quality retail properties in the city totalled only about 1 million sqm and vacancy rate was only 1.7 percent, both numbers the lowest among all the cities the report covers..
Andrew Batt, International Group Editor of PropertyGuru Group, wrote this story. To contact him about this or other stories email andrew@propertyguru.com.sg
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