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Entering the Rmbox Mall in Wangjing, one of Beijing’s largest communities in its northeast suburb, the first-time shopper to the four-storey, 110,000-squaremeter shopping center might doubt the mall is even open for business. A majority of the nearly 100 store fronts are dark and vacant with “For Lease” ads draped across each space. Stores that are open have more shopping assistants than customers perusing the shelves.
“Business has been bad since it opened in 2008,” said Wang Wei, a resident living nearby.
In the past three years, three malls have sprung up within half a kilometer of Wang’s neighborhood. The three shopping malls have a combined floor space of 1 million square meters, equivalent to 40 American football fields. Shopper attendance in that time, however, has been substantially less than fan totals at the China Football Association Super League. The oversupply of mall space in Wangjing is part of the construction fever that has hit most of China’s urban centers.
China was the most active retail property market, according to a report by the Londonbased commercial real estate advisor CBRE Ltd., compared to the 70 countries it surveyed.
Chinese cities will continue to dominate development activity over the next few years. Eight out of the top 10 most active markets globally are in China. North China’s Tianjin Municipality heads the list with 2.4 million square meters currently under construction, followed by Shenyang, capital of northeast China’ Liaoning Province and Chengdu, capital of southwest China’s Sichuan Province.
Too many
Indeed in many Chinese cities growth of retail property stock has increased much faster than the retail outlets themselves, causing “oversupply” to become an overarching theme in a number of markets, said James Hawkey, Executive Consultant, of Cushman& Wakefield, China, a real estate service firm based in the United States.
A report from Knight Frank LLP, an independent global property consultancy based in the UK, showed that annual gross rental yields on commercial properties in major cities such as Beijing and Shanghai have fallen to 4-6 percent from around 10 percent several years ago.
Commercial properties in Beijing and Shanghai are now generating annual gross rental returns below China’s official oneyear lending rate of 6.56 percent. That means if investors borrow and plough that money into commercial property, they stand to lose because the returns won’t even cover the borrowing cost.
The report stated that while investors are predominantly focused on China’s first-tier cities like Beijing and Shanghai, their interest in second- and third-tier, and even smaller cities, has been steadily growing.
Huizhou, a small city in southeast coastal Guangdong Province, has a total area of 600,000 square meters of shopping malls. Given its total population of 1.15 million, every two residents could share one square meter of shopping mall.
Guangzhou-based Southern Metropolis Daily reported that business in most of the shopping malls in Huizhou is flat.
“Shopping malls need a certain target population. Obviously, shopping malls that don’t get enough people through the door will fail,” said Ye Tan, a financial columnist.
“Over the next five years, there’ll be many an awkward moment when a shopping center opens with no population around it,”said Hawkey.
Developers and investors need to be aware of possible polarization in rentals and vacancies, with good shopping centers continuing to perform well financially and poor centers failing completely, according to the Cushman & Wakefield report.
Analysts also pointed out that high homogeneity of the shopping centers positioning is also responsible for the oversupply.
“Shopping malls in different cities look the same and basically have the same stores,”said Iven Du, Director of Retail Services of Knight Frank LLP.
Behind the boom
Facing the government’s tough measures to calm home prices starting in 2010, property developers have turned to commercial properties.
According to Wang Haibin, an analyst at Shenzhen World Union Properties Consultancy Co. Ltd., the major reason for the boom of the commercial property sector is that it is not subject to tightening measures and is unlikely to be targeted by future policy changes.
Over the past three years, China has emerged as a major commercial real estate market, with direct investment volume doubling from $8 billion in 2008 to over$17 billion in 2011. China now ranks as the world’s sixth largest market, an impressive growth story given that an active investment market only started to build in 2005, said a recent report by property consultancy firm Jones Lang LaSalle, headquartered in Chicago.
Sino-Ocean Land is one of the developers that have increased their investment in commercial properties. Its profits in 2011 grew 14 percent year on year, and it has “adjusted marketing strategy in response to changing market conditions,” according to Li Ming, Chairman of Sino-Ocean Land Holdings.
Sino Ocean will spend half of its capital to develop commercial properties every year, with the other half going to residential properties, Li said.
Other developers vied to grab a share of the tasty commercial real estate sector. The Beijing-based Poly Real Estate Group announced in March that it will raise its investment in the retail property sector to 30 percent of its total investments.
Such moves helped boost the retail property market. According to the National Bureau of Statistics, the sold area of commercial properties rose 12.6 percent, while sales volume increased 23.7 percent in 2011.
Commercial property is set to become increasingly lucrative for investors and developers, especially in certain key second- and third-tier cities, said Tang Daizhong, Deputy Director of the Jingwei Real Estate Research Institute in Shanghai.
Another fact worth noticing is that local governments also played a role in creating commercial property bubbles.
“Local governments that wanted to undertake these grandiose projects are to blame for this blind expansion in the commercial property sector,” said Du.
High-end shopping malls and their glitzy appeal are what local governments want to improve their image and add a boost to their economies through extra taxes and job creation, said a report of the 21st Century Business Herald.
Local governments even provided taxation rebates and low-interest loans for developers of commercial properties.
Urban planning administrators should enhance supervision and regulation of the commercial property sector, said Wang Xiaoping, General Manager of Suzhou Hanyu Real Estate Consultancy Co. Ltd.
Hawkey pointed out that insufficient supervision of the planning of commercial properties is attributable to the blind expansion and oversupply.
“Government planners only impose a restriction on the proportion of commercial property on a land, but how this commercial land should be planned is to be decided by the developers themselves,” said Hawkey.
According to the Cushman & Wakefield report, investors need to work closely with retailers and be able to anticipate their future needs.
“We believe the future for retail development and investment lies with increasingly specialized companies that understand retailing, have international exposure and understand the latest trends and concepts in retail design and management. While there is as yet little evidence of such developers emerging, watch this space,”said the report.
“Business has been bad since it opened in 2008,” said Wang Wei, a resident living nearby.
In the past three years, three malls have sprung up within half a kilometer of Wang’s neighborhood. The three shopping malls have a combined floor space of 1 million square meters, equivalent to 40 American football fields. Shopper attendance in that time, however, has been substantially less than fan totals at the China Football Association Super League. The oversupply of mall space in Wangjing is part of the construction fever that has hit most of China’s urban centers.
China was the most active retail property market, according to a report by the Londonbased commercial real estate advisor CBRE Ltd., compared to the 70 countries it surveyed.
Chinese cities will continue to dominate development activity over the next few years. Eight out of the top 10 most active markets globally are in China. North China’s Tianjin Municipality heads the list with 2.4 million square meters currently under construction, followed by Shenyang, capital of northeast China’ Liaoning Province and Chengdu, capital of southwest China’s Sichuan Province.
Too many
Indeed in many Chinese cities growth of retail property stock has increased much faster than the retail outlets themselves, causing “oversupply” to become an overarching theme in a number of markets, said James Hawkey, Executive Consultant, of Cushman& Wakefield, China, a real estate service firm based in the United States.
A report from Knight Frank LLP, an independent global property consultancy based in the UK, showed that annual gross rental yields on commercial properties in major cities such as Beijing and Shanghai have fallen to 4-6 percent from around 10 percent several years ago.
Commercial properties in Beijing and Shanghai are now generating annual gross rental returns below China’s official oneyear lending rate of 6.56 percent. That means if investors borrow and plough that money into commercial property, they stand to lose because the returns won’t even cover the borrowing cost.
The report stated that while investors are predominantly focused on China’s first-tier cities like Beijing and Shanghai, their interest in second- and third-tier, and even smaller cities, has been steadily growing.
Huizhou, a small city in southeast coastal Guangdong Province, has a total area of 600,000 square meters of shopping malls. Given its total population of 1.15 million, every two residents could share one square meter of shopping mall.
Guangzhou-based Southern Metropolis Daily reported that business in most of the shopping malls in Huizhou is flat.
“Shopping malls need a certain target population. Obviously, shopping malls that don’t get enough people through the door will fail,” said Ye Tan, a financial columnist.
“Over the next five years, there’ll be many an awkward moment when a shopping center opens with no population around it,”said Hawkey.
Developers and investors need to be aware of possible polarization in rentals and vacancies, with good shopping centers continuing to perform well financially and poor centers failing completely, according to the Cushman & Wakefield report.
Analysts also pointed out that high homogeneity of the shopping centers positioning is also responsible for the oversupply.
“Shopping malls in different cities look the same and basically have the same stores,”said Iven Du, Director of Retail Services of Knight Frank LLP.
Behind the boom
Facing the government’s tough measures to calm home prices starting in 2010, property developers have turned to commercial properties.
According to Wang Haibin, an analyst at Shenzhen World Union Properties Consultancy Co. Ltd., the major reason for the boom of the commercial property sector is that it is not subject to tightening measures and is unlikely to be targeted by future policy changes.
Over the past three years, China has emerged as a major commercial real estate market, with direct investment volume doubling from $8 billion in 2008 to over$17 billion in 2011. China now ranks as the world’s sixth largest market, an impressive growth story given that an active investment market only started to build in 2005, said a recent report by property consultancy firm Jones Lang LaSalle, headquartered in Chicago.
Sino-Ocean Land is one of the developers that have increased their investment in commercial properties. Its profits in 2011 grew 14 percent year on year, and it has “adjusted marketing strategy in response to changing market conditions,” according to Li Ming, Chairman of Sino-Ocean Land Holdings.
Sino Ocean will spend half of its capital to develop commercial properties every year, with the other half going to residential properties, Li said.
Other developers vied to grab a share of the tasty commercial real estate sector. The Beijing-based Poly Real Estate Group announced in March that it will raise its investment in the retail property sector to 30 percent of its total investments.
Such moves helped boost the retail property market. According to the National Bureau of Statistics, the sold area of commercial properties rose 12.6 percent, while sales volume increased 23.7 percent in 2011.
Commercial property is set to become increasingly lucrative for investors and developers, especially in certain key second- and third-tier cities, said Tang Daizhong, Deputy Director of the Jingwei Real Estate Research Institute in Shanghai.
Another fact worth noticing is that local governments also played a role in creating commercial property bubbles.
“Local governments that wanted to undertake these grandiose projects are to blame for this blind expansion in the commercial property sector,” said Du.
High-end shopping malls and their glitzy appeal are what local governments want to improve their image and add a boost to their economies through extra taxes and job creation, said a report of the 21st Century Business Herald.
Local governments even provided taxation rebates and low-interest loans for developers of commercial properties.
Urban planning administrators should enhance supervision and regulation of the commercial property sector, said Wang Xiaoping, General Manager of Suzhou Hanyu Real Estate Consultancy Co. Ltd.
Hawkey pointed out that insufficient supervision of the planning of commercial properties is attributable to the blind expansion and oversupply.
“Government planners only impose a restriction on the proportion of commercial property on a land, but how this commercial land should be planned is to be decided by the developers themselves,” said Hawkey.
According to the Cushman & Wakefield report, investors need to work closely with retailers and be able to anticipate their future needs.
“We believe the future for retail development and investment lies with increasingly specialized companies that understand retailing, have international exposure and understand the latest trends and concepts in retail design and management. While there is as yet little evidence of such developers emerging, watch this space,”said the report.