According to Knight Frank and Holdways' latest research report, in the second half of 2011, the Chinese government tightened control on the residential property sector and developers were under increasing funding pressure. Investors and developers, therefore, shifted to the less heavily regulated commercial property market. Such moves helped boost the retail property performance: according to the National Bureau of Statistics of China, the sold area of commercial properties rose 12.6%, while sales volume increased 23.7% in 2011. Monthly rents in all seven cities grew 0.6–9.2%.
According to Knight Frank and Holdways, strong absorption rates are noted in seven major cities we monitor. Although stock of high-end shopping centres grew 110,000–485,000 sq m in the seven major cities during the second half of 2011, six out of the seven cities witnessed drops in vacancy rates compared with the first half of the year. Vacancy rates in second-tier cities averaged at only 6.6%, with the rates in Tianjin and Chengdu reaching high levels of over 12%.
Mr Thomas Lam, Head of Greater China Research at Knight Frank says “international brands are continuing to expand in China. For Example, most of H&M’s new global stores this year will be located in China, while its total number of stores on the Mainland is expected to triple over the next three years. Beside, Mainland developers are actively investing in commercial properties. For example, New World Department Store China Limited (0825.HK) bought Channel 1, a shopping mall in Shanghai with a total gross floor area of 42,000 sq m, for RMB1.46 billion or about RMB35,000 per sq m in the second half of 2011. This deal has further improved investment sentiment in retail market while adding fuel to the market rally.”
Control over the residential property market is unlikely to relax in 2012. Thomas Lam foresees abundant growth potential in China’s retail sector in the first half of 2012 and expects it to outperform the office and residential sectors. He believes retail rents and prices will have double-digit growth in 2012 with highest growth is likely to be in Shanghai.