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REAL ESTATE: First Come the Shopping Malls, Next Come the Mall Rats
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A current trend that is occurring in cities across China is the slowdown in the construction on new department stores compared to shopping malls; in particular lifestyle shopping centres.  Jones Lang LaSalle’s research forecast a record year of around 150 shopping malls opening in 20 markets. In addition, the average size of theses shopping malls will exceed 80,000 sqm. That means that at least 12,000,000 sqm of just shopping malls are likely to be constructed by the end of this year, which is the equivalent of building sixteen new Forbidden Cities.
 
Of the 20 markets, this trend of building shopping malls instead of department stores is most prevalent in Tier 1 cities, such as Beijing and Shanghai. For example, approximately 58% of all prime retail stock in Beijing’s urban areas was shopping malls in 2007. Today, that number has grown by six percentage points and by 2017, shopping malls are expected to comprise more than 70% of the total urban prime retail stock. For suburban areas of Beijing the trend is even clearer. In 2007, no prime shopping malls existed in the suburban areas of the city, but by 2017 nearly 80% of the stock is forecast to be shopping malls. Second and third tier cities are also experience this shift in retail demand such as Dalian, Zhengzhou and Tianjin, the vast majority of the future supply will be shopping malls.
 
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So what’s sparking this trend? As my colleague Evian Zhu pointed out in her blog post, “Is This The End Of The Department Store Era In China?” the driving force behind the change is a shift in consumer purchasing habits. As Chinese consumers become more affluent, shopping transforms from a necessity to a source of entertainment, causing shoppers to want more out of their shopping experiences than just buying clothes. It has become a general rule of thumb that in order to attract shoppers and compete in the market, retail projects need to allocate at least 30% of their retail space to non-traditional retail elements, such as food and beverage (F&B), entertainment and other services. Thus, the large state-owned department stores of the 1980s and early 1990s that offer plenty in the form domestic clothing options cannot compete with the modern large shopping malls that offer a diverse array of international and domestic brands, as well as F & B and leisure areas. 
  
Even modern department stores are being forced to rethink their model in the face of change. For example, for the last year, Parkson has been trying to increase the amount of F & B brands at their projects in an effort to attract today’s shoppers. However, as seen in the graph below not all of its department stores have had success in trying to make the transition, Parkson Fuxingmen still has not been able to increase its F & B levels significantly. 
 
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The change in consumption habits has already had animpact on retail sales for many of Beijing’s most famous retail projects. As can be seen from the graph above, several of the shopping malls in Beijing saw retail sales increase by at least 10% annually, while many of the department stores experienced growth much slower than 10% and a significant portion had negative retail sales growth in 2012. Chaoyang Joy City, which had one of the highest retail sales growths in Beijing, also has one of the largest F & B and entertainment selections in the city. Developers have seen these retail sales numbers too, that is also why they are keener to build shopping malls than department stores. 
 
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It must be said that building a shopping mall by no means guarantees that it will outperform a department store. Many factors come into play for a shopping mall to be successful, such as the marketing, the management, the location, design and tenant mix, to name a few. These elements can have a large effect on whether a retail project experiences robust or mediocre retail sales; even a factor such as building an outdoor shopping mall in a cold city like Beijing can affect the amount of retail sales a project receives. However, for developers trying to entice the mall rats into their future retail projects, beginning with the idea of constructing a shopping mall is already a good start.


by Durrell Mack

Head of Tianjin Research, Jones Lang LaSalle
 

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