Economic growth for Guangzhou in 2014 stood at 8% (12.9% in 2013) while the overall growth for China slowed to 7.9% (9.6% in 2013). The figure shows the Chinese economy has decelerated over the past two years. As a result of the typical peak spending seasons, retail sales grew steadily in the second half of 2014, with a total amount of around RMB 392.2 billion, up 52.3% in six months. Retail market will stay resilient in 2015, expecting a 4.3% y-o-y growth to around RMB 802.9 billion. This will support the steady development of Guangzhou’s retail market.
As retail space of new shopping malls has been on high demand, the average vacancy rate in the city dropped to around 10% in the first quarter of 2015. With most shop owners in newly developed areas offering discounts or free-trials as new leasing strategies, the risk of higher vacancy rates in those areas would be minimized. At present, international fashion or signature food & beverage brands are more active in leasing market in Guangzhou. In contrast, the rising popularity of online shopping has a major impact on fashion and home appliance retailers, resulting in downsizing chains.
In 2015, the average retail rent in Guangzhou is tipped to be around RMB 650 / sqm, as a result of lower rental in certain areas. With a continuously high supply of retail space, rents in Panyu, Baiyun and Haizhu districts are expected to be in the range of around RMB 200-400 sqm and reach RMB 1,000 sqm or above in Tianhe. As most service-oriented brands are not able to afford high rents, with an added impact from bigger leasing space, the overall surge in rents would be limited in shopping malls.
We expect competition to continue between malls due to the e-commerce boom. Landlords in prime areas are likely to re-structure their tenant mixes. In the long term, developers would keep an eye on non-core areas due to the rising population and its growing spending power. Major shopping malls are expected to come on board for a healthier retail landscape in Guangzhou.