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Beijing shopping mall industry faces oversupply concerns

By Zhao Tingting (chinadaily.com.cn)
Updated: 2008-08-01 15:54

The shopping mall industry in Beijing is in the doldrums due to oversupply and moderate consumption, the China Business News reported Friday, citing industry sources.

Beijing's shopping mall industry has experienced high-speed development in recent years. According to statistics from CB Richard Ellis, the world's largest commercial real estate services firm, newly-added commercial housing areas amounted to 500,000 sq m in the first half of this year, up 8 percent from a year earlier and another 1.8 million sq m of commercial housing are scheduled to open by the end of this year.

Five of the eight commercial housing projects constructed in Beijing during the first half of the year were shopping malls. These and some other completed malls that postponed their openings are expected to open in the second half of this year or next year, causing oversupply concerns.

The number of shopping malls in Beijing has risen several times in recent years, far more than the growth rate of China's retail sales, which is estimated to stand at 15.8 percent this year.

"Many developers expect a high return on investments in developing shopping malls," said Zhang Tianxiang, general manager of Hotime Mall Investment Consulting Co Ltd, a leading commercial real estate service provider in China.

Pan Shiyi, SOHO China board chairman, said "Commercial housing areas account for 10 percent of the company's total development, but 20 percent of its turnover and 30 percent of its profits", when he announced the company turned to commercial housing development.

Developers set their sights on forefront international brands for high rents, said Zhang.

Their high expectations resulted in high rents, But Zhang said they should not be so optimistic about high-end brands and high rents.

A shopping mall will not open with a rent reservation rate lower than 70 to 80 percent, according to guide regulations of the shopping mall industry. Some shopping malls must postpone their opening date several times because of low rent reservation rates, such as The Village at Sanlitun, the first retail project of Swire Properties, although the developer thought its development in Sanlitun deserved the rent.

The Village at Sanlitun may face rougher conditions, though it has the potential to become a top shopping center. SOHO China's project at Sanlitun, including five shopping malls, started to be sold partially, causing fiercer competition among shopping malls in the area.

Unlike residential developers that can pay back bank loans through pre-selling, shopping mall developers' repayment period is fairly long. Rent returns of many shopping malls can hardly offset banks’ interests because of the increasing interest rate.