Briefing Retail sector July 2018

Savills China Research

Beijing

Briefing

Retail sector

July 2018

Image: Starbucks Reserve, Beijing Fang

SUMMARY

Beijing¡¯s retail market only saw two new projects launched in 1H/2018, with non-prime

and suburban markets receiving one project each. The overall retail market was relatively

stable, with both occupancy and rental levels only registering marginal growth.

? The retail market received only one

new project in Q2/2018, with Mall &

More in Daxing contributing 65,000 sq

m GFA. As a result, total shopping mall

stock increased to 9.71 million sq m,

while department store stock remained

at 2.1 million sq m.

? The city-wide shopping mall

average occupancy rate increased by

0.1 percentage points (ppt) quarteron-quarter (QoQ) to 93.1% by the end

of Q2/2018, although this was down

0.3 ppts year-on-year (YoY). City-wide

shopping mall first-floor rents grew

0.6% QoQ to an average of RMB932.2

per sq m per month, up by 2.1% YoY.

? City-wide shopping mall first-floor

rents grew 0.6% QoQ to an average of

RMB932.2 per sq m per month, up by

2.1% YoY.

? Three new mid- to high-end

shopping mall projects debuted in

2H/2018, contributing a total GFA of

approximately 426,000 sq m.

¡°The retail industry is going

through a stage of evolution

where the ¡®New Retail¡¯ model is

being rapidly adopted and has

emerged as the key vehicle for

traditional retailers to transform

and upgrade their business

models.¡± Jack Xiong, Savills Research

& Consultancy

research

01

Briefing | Beijing retail sector

Retail sales were up 4.4% YoY to

RMB539.8 billion in 1H/2018, although

the growth rate continued to slow.

Total retail sales of consumer goods

reached RMB486.3 billion, of which the

F&B industry accounted for RMB53.5

billion. Online retail sales continued

to record strong growth, registering

a 22.0% YoY increase to RMB113.7

billion and accounting for 21.1% of

total retail sales.

State Council to reduce import

tariffs on consumer goods from 1

July

At the State Council executive meeting

on 30 March, it was decided that

import tariffs for daily consumer goods

would be further reduced, effective

1 July. The tariff rate on selected

consumer goods, including clothing,

shoes, apparel, sporting equipment

and other items, was reduced from an

average of 15.7% to 6.9%. Meanwhile,

the average tariff rate on cosmetics

and health projects, such as skin care,

haircare and other items, was reduced

from 8.4% to 2.9%.

Reducing import tariffs for daily

consumer goods can help improve

the affordability of high-quality goods.

The reduction should benefit high-end

consumption, the development of the

retail industry and the overall upgrade

of both the domestic industry and

product quality.

Supply and stock

The retail market received only one

new project in Q2/2018, with Mall &

More in Daxing contributing 65,000 sq

m GFA. As a result, total shopping mall

stock increased to 9.71 million sq m,

while department store stock remained

at 2.1 million sq m.

Mall & More @ Han¡¯s Plaza

Mall & More is the retail component

of the mixed-use project, Han¡¯s Plaza.

The 65,000 sq m three-storey project

hosts a variety of retailers from the

culture and arts, lifestyle and F&B

categories. Strong pre-commitment

rates saw the mall achieve an

occupancy rate of approximately

85% upon opening. 74% of the

retailers were making their first

entry into Yizhuang town in Daxing.

Major tenants included: 7Fresh by

02

GRAPH 1

Retail sales, Jan 2010-Jun 2018

Retail sales (LHS)

Retail sales nominal YoY growth rate (RHS)

140

30%

120

25%

100

Billion RMB

Economic overview

July 2018

20%

80

15%

60

10%

40

5%

20

0

0%

Source: Beijing Municipal Statistics Bureau, Savills Research & Consultancy

, Uniqlo, CGV Cinemas,

CITIC Books and an indoor children¡¯s

park ¡°Mooofun¡±. The new project

is a welcome addition to the area,

especially for those working in the

area.

Project upgrading,

conversion and

transformation

In response to the upgrade in

consumption demand and changing

consumer behaviour, retail projects

continued to improve the consumer

experience through reconfiguring their

spaces and creating more value.

Changying Longfor Paradise Walk

opened a new space called ¡°Hua Jian

Xiang¡± at the end of June. The space

was previously occupied by Parkson

Department Store before it closed in

May 2017. The new space spans an

area of 34,000 sq m across B1 to F4.

Currently, almost 80 tenants have been

introduced, including Lego Discovery

Centre, the first in North China and

the third in the mainland, SISYPHE

Park Books and Ink+Ivy Furniture.

A mechanical art exhibition is also

scheduled to be launched.

Landgent City Mall reopened on 1

May after renovations and upgrade.

Rebranded as ¡°Space 3¡±, the project

features an artistic design and

atmosphere. The project has placed

heightened emphasis on consumer

experience through increasing the

proportion of lifestyle services,

children¡¯s education and fine dining

retailers.

Yintai In88 in Wangfujing recently made

a new round of tenant adjustments in

the lower floors (B1-F2). Older retailers

have started to withdraw and new

tenants including MUJI, Xiaomi and

Lego have committed to the project.

At the beginning of the year, the upper

floors (F4-F8) were converted into

office space and taken up by coworking operator Kr Space.

Demand and occupancy

rates

Leasing demand was strong in

Q2/2018, with the most active

expansion coming from high-footfallgenerating F&B and fashion retailers,

which accounted for 33.6% and 23.6%

of total leasing demand, respectively.

Domestic retailers displayed a strong

appetite, accounting for 60% of total

leasing demand. More than 60% of

international retailers continued to

prefer locations in prime submarkets,

where fashion and accessories retailers

drove the majority of demand.

More retailers are taking up a larger

space and attracting people through

emphasising the shopping experience

and an exceptional level of interior

design.

? Starbucks opened a Reserve coffee

bar in Beijing Fang at the end of June.

July 2018

Briefing | Beijing retail sector

The store is located in a three-storey

building and occupies 1,040 sq m.

In addition to Starbucks Reserve,

the location also houses Teavana¡ªa

concept bar by Starbucks selling

alcoholic beverages, the first of its kind

in China. The design of the store has

a strong emphasis on Beijing¡¯s history

and culture. This is the first Starbucks

Reserve Roastery in Beijing and the

second in Mainland China after the

Starbucks Reserve in Shanghai¡¯s HKRI

Taikoo Hui shopping mall.

? The long-awaited MUJI Hotel Beijing

made its debut in the historic Beijing

Fang on 30 June. The hotel is the

second of its kind following the launch

of MUJI Hotel Shenzhen. In addition to

hotel rooms, the projects also features

a MUJI Store, MUJI Meal & Caf¨¦ and

MUJI Diner.

New Retail expanded greatly in

the city in 1H/2018. Yonghui Super

Species opened two outlets during the

period¡ªone in Times Paradise Walk in

GRAPH 2

Major retail area occupancy rates and rental

index, Q1/2018 vs Q2/2018

Q1/2008 = 100

RentVacChartEN

Q1/18 Rent index (LHS)

Q2/18 Rent index (LHS)

Q1/18 Occupancy rate (RHS)

Q2/18 Occupancy rate (RHS)

400

100%

320

96%

240

92%

160

88%

80

84%

0

Xidan

WFJ

CBD

Sanlitun

Source: Savills Research & Consultancy

Lufthansa

E2R

80%

ZGC

Page 1

GRAPH 3

First-floor shopping mall rental index,

Q1/2008-Q2/2018

QoQ

YoY

2008

2009

2010

2011

2012

2013

2014

2015

2016

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

-5%

Q1

85

Q3

0%

Q1

100

Q3

5%

Q1

115

Q3

10%

Q1

130

Q3

15%

Q1

145

Q3

20%

Q1

Q1/2008 = 100

Overall

160

Daxing and one in UniFans in the AsiaOlympic area. Hema Supermarket, the

offline fresh-food store operated by

Alibaba, opened seven new stores in

Beijing. In other news:

? Joy City and reached a

strategic agreement on 26 June.

The two will work together on

retail renovation, which will include

deepening their offline-and-online

business integration, introducing

7Fresh and JD Go into Joy City

projects and creating new business

models through capitalising on JD¡¯s

unmanned store technology.

? Easyond, a cross-border

e-commerce company, opened its

third offline store in Beijing in the

basement of the Oriental Plaza in

Wangfujing. The 3,000 sq m offline

store offers customer pickup and

after-sale services after placing their

orders online. The store also offers

home delivery services within a three

kilometre range.

Low levels of new supply matched

with strong take-up caused a

slight improvement in the city-wide

occupancy rate. City-wide shopping

mall occupancy rates increased by

0.1 ppts QoQ to 93.1% in Q2/2018,

though down 0.3 ppts YoY.

Prime areas¡¯ average occupancy rate

increased by 0.7 ppts QoQ and 1.7

ppts YoY to 95.7%.Alexander Wang,

world-renowned fashion designer,

has teamed up with Magnum to

launch The Magnum Pleasure Store

pop-up in China Central Place. The

opening marks the first stop of a

multiple city tour and will also serve

as a platform for the designer to

introduce a specially designed AW x

Magnum Cooler handbag. Nowadays,

retailers are racking their brains to

come up with new seasonal marketing

campaigns and concepts to stimulate

consumption.

Non-prime areas' average occupancy

rate increased by 0.2 ppts QoQ to

93.2%, up 2.9 ppts YoY. Occupancy

rates in suburban markets dropped 0.5

ppts QoQ to 91.2% in Q2/2018, down

3.8 ppts YoY.

2017 2018

Source: Savills Research & Consultancy

research

03

Briefing | Beijing retail sector

July 2018

Rents

City-wide shopping mall first-floor

rents registered growth of 0.6% QoQ

to an average of RMB932.2 per sq m

per month, up by 2.1% YoY.

Prime rents increased by 0.5% QoQ

and 1.7% YoY to an average of

RMB1,200.3 per sq m per month in

Q2/2018. Non-prime rents increased

by 0.5% QoQ and 2.6% YoY to an

average of RMB716.5 per sq m per

month in Q2/2018.

Market outlook

Three new mid- to high-end

shopping mall projects debuted in

2H/2018, contributing a total GFA of

approximately 426,000 sq m.

The retail industry is going through

a stage of evolution where the lines

between traditional retail and ¡°New

Retail¡± are constantly being blurred.

The New Retail model is rapidly being

adopted and has emerged as the

key vehicle for traditional retailers to

transform and upgrade their business

models. ?

TABLE 1

Project focus, 2H/2018

Project

CapitaMall Tiangongyuan

Paradise Walk Fangshan

ID Mall

Daxing

Fangshan

Chaoyang

Developer

CapitaLand

Longfor

CITIC Capital

Retail type

Shopping mall

Shopping mall

Shopping mall

200,000

100,000

126,000

Location

Retail GFA (sq m)

Source: Savills Research & Consultancy

Please contact us for further information

Research

Central Management

Research &

Consultancy

James Macdonald

Senior Director

China

+8621 6391 6688

james.macdonald@.cn

Anthony McQuade

Managing Director

North China

+8610 5925 2002

anthony.mcquade@.cn

Jack Xiong

Director

Beijing

+8610 5925 2042

jack.xiong@.cn

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