April 2013

China Retail Property Market

Macro-Economics1

CBRE | Page 3

2002

-Q1

2002

-Q2

2002

-Q3

2002

-Q4

2003

-Q1

2003

-Q2

2003

-Q3

2003

-Q4

2004

-Q1

2004

-Q2

2004

-Q3

2004

-Q4

2005

-Q1

2005

-Q2

2005

-Q3

2005

-Q4

2006

-Q1

2006

-Q2

2006

-Q3

2006

-Q4

2007

-Q1

2007

-Q2

2007

-Q3

2007

-Q4

2008

-Q1

2008

-Q2

2008

-Q3

2008

-Q4

2009

-Q1

2009

-Q2

2009

-Q3

2009

-Q4

2010

-Q1

2010

-Q2

2010

-Q3

2010

-Q4

2011

-Q1

2011

-Q2

2011

-Q3

2011

-Q4

2012

-Q1

2012

-Q2

2012

-Q3

2012

-Q4

2013

-Q1

2013

-Q2

2013

-Q3

2013

-Q4

-10

-5

0

5

10

15

World Western Europe

AsiaPacific

United States

China

Real GDP Growth (%, y-o-y)

Source: IHS Global Insight

Is China’s Economy in Decline?

CBRE | Page 4

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

F

2014

F

2015

F0

5,000

10,000

15,000

20,000

25,000

30,000 R

MB

per

cap

ita

Source: China Statistics Bureau, China Twelfth Five-year Plan

Significant Growth in Disposable Income

CBRE | Page 5

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

F

2013

F

2014

F

2015

F0

5,000

10,000

15,000

20,000

25,000

30,000

Ann

ual R

etai

l Sal

es (

RM

B b

illio

n)

Source: China Statistics Bureau, EIU

Fuelling Domestic Consumption

CBRE | Page 6

Consumption / GDP

US

Italy

UK

Japa

n

Fra

nce

Ger

man

y

Chi

na

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

70.8%

61.0% 59.9% 59.1% 58.1%55.7%

33.0%

Retail Market Development2

CBRE | Page 8

Significant Brand Penetration

China has only been a truly open market for a decade, and yet a significant retailer presence exists already.

CBRE’s 2012 “How Global is the Business of Retail?” report highlights that China ranks 5th out of all international markets in terms of the presence of international brands, with Beijing and Shanghai both figuring close to the top ten most attractive global cities for retailers.

2012 Rank

Country Region % International Retailers Present

1 United Kingdom Europe 56.7%

2 UAE Middle East 53.1%

3 United States Americas 50.3%

4 Spain Europe 47.5%

5 China Asia 47.2%

6= France Europe 46.9%

6= Germany Europe 46.9%

8 Russia Europe 44.5%

9 Italy Europe 42.9%

10 Saudi Arabia Middle East 41.1%

11 Hong Kong Asia 40.8%

12 Kuwait Middle East 40.2%

13 Singapore Asia 39.9%

14 Turkey Europe 39.0%

15 Belgium Europe 37.4%

2012Rank

City % International Retailers Present in City

1 London 55.5%

2 Dubai 53.8%

3 New York 43.9%

4= Moscow 43.2%

4= Paris 43.2%

6 Hong Kong 40.5%

7 Madrid 39.9%

8 Kuwait City 39.5%

9 Barcelona 39.2%

10 Singapore 38.9%

11= Los Angeles 38.5%

11= Shanghai 38.5%

13 Beijing 38.2%

14 Istanbul 37.2%

15 Milan 36.9%

Source: CBRE Research

CBRE | Page 9

Significant Brand Penetration

Source: CBRE Research

CBRE | Page 10

Increasing Pace of Development

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1995Metro, Shanghai

Carrefour, Beijing

1989Shenzhen

1999Grand Gateway,

First Shopping CenterShanghai

1987Beijing

1992Beijing

1996Shenzhen

2000Oriental Plaza,

First Shopping Mall Beijing 2010

Beijing & Shanghai

2008Beijing

2007Shanghai

2005Shanghai

2004Full Opening of China Market

For Foreign Investors

1992The Entry of Foreign Invested Department Stores

& Burgeoning Luxury Sector

2012Shanghai

Beijing

CBRE | Page 11

The Chinese Shopper

CBRE | Page 12

The Chinese Shopper

Young, fashionable and spending a significant proportion of their monthly income on retail merchandise.

CBRE | Page 13

The Chinese Shopper

Young, fashionable and spending a significant proportion of their monthly income on retail merchandise.

Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family.

CBRE | Page 14

The Chinese Shopper

Young, fashionable and spending a significant proportion of their monthly income on retail merchandise.

Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family.

Interested in brands that have a strong international reputation and have adapted to local tastes and sizing

CBRE | Page 15

The Chinese Shopper

Young, fashionable and spending a significant proportion of their monthly income on retail merchandise.

Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family.

Interested in brands that have a strong international reputation and have adapted to local tastes and sizing

Pays attention to value for money and quality of merchandise – real or perceived

CBRE | Page 16

The Chinese Shopper

Young, fashionable and spending a significant proportion of their monthly income on retail merchandise.

Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family.

Interested in brands that have a strong international reputation and have adapted to local tastes and sizing

Pays attention to value for money and quality of merchandise – real or perceived

Is tech savvy – uses social networking and media to discuss the latest trends in fashion, brands and retail destinations

CBRE | Page 17

The Chinese Shopper

Young, fashionable and spending a significant proportion of their monthly income on retail merchandise.

Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family.

Interested in brands that have a strong international reputation and have adapted to local tastes and sizing

Pays attention to value for money and quality of merchandise – real or perceived

Is tech savvy – uses social networking and media to discuss the latest trends in fashion, brands and retail destinations

Is increasingly influenced by multi-channel brand marketing

CBRE | Page 18

The Chinese Shopper

Young, fashionable and spending a significant proportion of their monthly income on retail merchandise.

Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family.

Interested in brands that have a strong international reputation and have adapted to local tastes and sizing

Pays attention to value for money and quality of merchandise – real or perceived

Is tech savvy – uses social networking and media to discuss the latest trends in fashion, brands and retail destinations

Is increasingly influenced by multi-channel brand marketing

Is as comfortable on High Streets as they are in Department stores and Shopping Centres

CBRE | Page 19

How Retailers Are Responding

CBRE | Page 20

How Retailers Are Responding

Opening large, well located stores that are executed to international standards in order to generate impact with consumers and earn credibility with Landlords.

CBRE | Page 21

How Retailers Are Responding

Opening large, well located stores that are executed to international standards in order to generate impact with consumers and earn credibility with Landlords.

Developing product ranges, merchandising, supply chain and marketing in line with European standards.

CBRE | Page 22

How Retailers Are Responding

Opening large, well located stores that are executed to international standards in order to generate impact with consumers and earn credibility with Landlords.

Developing product ranges, merchandising, supply chain and marketing in line with European standards.

Increasing emphasis on ‘Brand experience’ in terms of shop-fit, retail environment and product sophistication.

CBRE | Page 23

How Retailers Are Responding

Opening large, well located stores that are executed to international standards in order to generate impact with consumers and earn credibility with Landlords.

Developing product ranges, merchandising, supply chain and marketing in line with European standards.

Increasing emphasis on ‘Brand experience’ in terms of shop-fit, retail environment and product sophistication.

Further adapting to the Chinese market. More than just a fundamental difference in sizing and generic consumption demands compared with Europe.

CBRE | Page 24

How Retailers Are Responding

Opening large, well located stores that are executed to international standards in order to generate impact with consumers and earn credibility with Landlords.

Developing product ranges, merchandising, supply chain and marketing in line with European standards.

Increasing emphasis on ‘Brand experience’ in terms of shop-fit, retail environment and product sophistication.

Further adapting to the Chinese market. More than just a fundamental difference in sizing and generic consumption demands compared with Europe.

Adapting to regional differences in climate, spending power, and taste throughout China

Understanding Retail Destinations3

CBRE | Page 26

Retailer Presence in Chinese Cities

Shan

ghai

Beijing

Han

gzho

u

Shen

zhen

Nan

jing

Chen

gdu

Gua

ngzhou

Shen

yang

Dalian

Tian

jin

Suzhou

Chon

gqing

Xi'an

Qingd

ao

Wuh

an

Ningb

o

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

15

30

45

60

75

90

105

120

Source: CBRE Research

113

46

113

% of global retailers present in each city

CBRE | Page 27

Beijing – CBD

Home of the international business community

Retail offer dominated by luxury shopping malls

The Place enjoyed early success.

But has struggled to sustain early footfall numbers and will face stiff competition

CBRE | Page 28

Beijing’s most traditional retailing area.

Pedestrianised street anchored by Beijing APM and Oriental Plaza.

Footfall levels surpass 600,000 people per day and more than 1,200,000 during public holidays.

Mixture of domestic and foreign tourists and white collar office workers.

Beijing – Wangfujing

CBRE | Page 29

Beijing – Sanlitun

Only recently emerged as a mainstream retail destination.

Traditionally renowned for bars, restaurants and night time activity.

Flagship stores and innovative design has led to a significant draw from throughout Beijing.

CBRE | Page 30

Shanghai – West Nanjing Road

The most established business district in Puxi

The focus of luxury retailing in Shanghai with brands accommodated within Plaza 66, CITIC Square andr Westgate Mall.

However, Gap, Uniqlo, H&M, Sephora and American Eagle Outfitters have all opened stores recently

CBRE | Page 31

Shanghai – East Nanjing Road

Fully pedestrianised shopping street with high footfall levels.

State-owned department stores and local retailers dominate although international brands have started to gain a foothold.

Foreign retailers with the most notable presence include Apple, Zara, Mango, Uniqlo, Forever 21 and WE.

CBRE | Page 32

Shanghai – Huai Hai Road

A tree lined boulevard split into two sections.

The eastern section is characterised by shopping malls and retail podiums attached to office towers.

The western section of Huai-Hai Road is characterised by mass market retailers and resembles more of a European High Street.

CBRE | Page 33

Data as of Q4 2012

Global Prime Retail Rents

Hon

g K

ong

New

Yor

k

Lond

on

Par

is

Syd

ney

Tok

yo

Zur

ich

Mel

bour

ne

Mos

cow

Bei

jing

Mila

n

Sha

ngha

i

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000U

SD

psf

p.a

.

CBRE | Page 34

The Growth of Second Tier Cities

2nd TIER

CITIES

CBRE | Page 35

Population Migration

City Population

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

10 million or more

5 to 10 million

1 to 5 million

500 000 to 1 million

Fewer than 500 000

CBRE | Page 36

The Emergence of Mega Cities

Urban Population as a % of Total Population of Province

30% - 49%

50% - 74%

75% and over

Under 29%

Heilongjiang

Inner Mongolia

Tibet

Qinghai

Jilin

LiaoningBeijing

Tianjin

Xinjiang

Gansu

Ningxia Shanxi

Sichuan

Yunnan

Guizhou

Guangxi

Shaanxi

HubeiChongqin

g

Hunan

Shandong

Hebei

Guangdong

Jiangxi

Henan

Anhui

Jiangsu

Zhejiang

Fujian

Taiwan

-Shangha

i

Macau SAR

HKSAR

Hainan

1953 2010 2020 Forecast

Chongqing 10.00 28.39 32.90

Shanghai 6.20 18.88 23.00

Beijing 2.80 16.95 18.00

Chengdu 5.20 12.71 15.00

Tianjin 2.70 11.76 13.50

Shenzhen 0.19 8.77 13.50

Guangzhou 1.50 10.18 12.00

Qingdao 4.30 7.62 12.00

Xi’an 2.90 8.38 10.30

Nanjing 1.50 7.59 10.00

Wuhan 1.04 8.97 9.55

Hangzhou 3.17 7.97 8.50

Dalian 2.90 6.13 8.00

China Major Cities (Population in million)

Source: National Statistics Bureau of China, forecast figures for 2020

Noted: the figures listed above are permanent population (live in the city for more than 6 months)

CBRE | Page 37

Disposable Income in Major Chinese Cities

2012 Disposable Income and Growth Rate

Be

ijin

g

Sh

an

gh

ai

Gu

an

gzh

ou

Sh

en

zhe

n

Da

lian

*

Qin

gd

ao

Tia

njin

Sh

en

yan

g*

Ha

ng

zho

u

Na

njin

g

Nin

gb

o

Ch

en

gd

u

Ch

on

gq

ing

Xia

n

Wu

ha

n0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Ann

ual D

ispo

sabl

e In

com

e (R

MB

per

cap

ita)

Y-o-Y

Grow

th Rate (%

)

Source: China Statistics Bureau

Note: Figures for Dalian and Shenyang are on estimation.

CBRE | Page 38

Retail Sales in Major Chinese Cities

2012 Retail Sales and Growth Rate

Source: China Statistics Bureau

Note: Figures for Dalian and Shenyang are on estimation.

Be

ijin

g

Sh

an

gh

ai

Gu

an

gzh

ou

Sh

en

zhe

n

Da

lian

*

Qin

gd

ao

Tia

njin

Sh

en

yan

g*

Ha

ng

zho

u

Na

njin

g

Nin

gb

o

Ch

en

gd

u

Ch

on

gq

ing

Xia

n

Wu

ha

n0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

Ann

ual R

etai

l Sal

es (

RM

B 1

00 m

illio

n) Y

-o-Y G

rowth R

ate (%)

CBRE | Page 39

New airports/airport extension

Major revamp of port facilities

Metro systems/light rail

Inner city urban regeneration/

Satellite cities

Dalian

Xi’an

Qingdao

Chengdu

Ningbo

Changsha

Nanjing

Tianjin

Shenyang

Chongqing

Kunming

Wuhan

Changchun

Harbin

Fuzhou

Suzhou

Anshan

Major Infrastructure Development

CBRE | Page 40

Retail Rental Trends

Rental Index

Index: Q1 2003 = 100Source: CBRE Research

2003.1

2003.2

2003.3

2003.4

2004.1

2004.2

2004.3

2004.4

2005.1

2005.2

2005.3

2005.4

2006.1

2006.2

2006.3

2006.4

2007.1

2007.2

2007.3

2007.4

2008.1

2008.2

2008.3

2008.4

2009.1

2009.2

2009.3

2009.4

2010.1

2010.2

2010.3

2010.4

2011.1

2011.2

2011.3

2011.4

2012.1

2012.2

2012.3

2012.4

0

50

100

150

200

250 Beijing Shanghai Guangzhou Shenzhen Tier-2

CBRE | Page 41

Good Quality Retail Accommodation

CBRE | Page 42

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 F

2014 F

2015 F

2016 F

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000Tier-1 cities Tier-2 cities

sm

The Focus of Future Supply

Source: CBRE Research

Doing Business in China4

CBRE | Page 44

Doing Business in ChinaLessons to be learnt from retailers that are successful in the market today:

CBRE | Page 45

Doing Business in ChinaLessons to be learnt from retailers that are successful in the market today:

Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages.

CBRE | Page 46

Doing Business in ChinaLessons to be learnt from retailers that are successful in the market today:

Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages.

Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities

CBRE | Page 47

Doing Business in ChinaLessons to be learnt from retailers that are successful in the market today:

Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages.

Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities

Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities.

CBRE | Page 48

Doing Business in ChinaLessons to be learnt from retailers that are successful in the market today:

Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages.

Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities

Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities.

The acquisition of flagship stores in prime locations is important in establishing credibility with landlords and generating instant excitement amongst consumers

CBRE | Page 49

Doing Business in ChinaLessons to be learnt from retailers that are successful in the market today:

Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages.

Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities

Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities.

The acquisition of flagship stores in prime locations is important in establishing credibility with landlords and generating instant excitement amongst consumers

Agree the real estate strategy – the reporting and decision making process.

CBRE | Page 50

Doing Business in ChinaLessons to be learnt from retailers that are successful in the market today:

Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages.

Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities

Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities.

The acquisition of flagship stores in prime locations is important in establishing credibility with landlords and generating instant excitement amongst consumers

Agree the real estate strategy – the reporting and decision making process.

Pricing is a driver of success, and now not only in the mass market sector. Pricing the product correctly and balancing margin with volume can dictate success.

CBRE | Page 51

Doing Business in ChinaLessons to be learnt from retailers that are successful in the market today:

Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages.

Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities

Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities.

The acquisition of flagship stores in prime locations is important in establishing credibility with landlords and generating instant excitement amongst consumers

Agree the real estate strategy – the reporting and decision making process.

Pricing is a driver of success, and now not only in the mass market sector. Pricing the product correctly and balancing margin with volume can dictate success.

Invest in on-going multi-channel marketing

CBRE | Page 52

Doing Business in ChinaLessons to be learnt from retailers that are successful in the market today:

Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages.

Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities

Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities.

The acquisition of flagship stores in prime locations is important in establishing credibility with landlords and generating instant excitement amongst consumers

Agree the real estate strategy – the reporting and decision making process.

Pricing is a driver of success, and now not only in the mass market sector. Pricing the product correctly and balancing margin with volume can dictate success.

Invest in on-going multi-channel marketing

Rents are comparable with some large European cities, and sales densities are still increasing so financial return may not be short term.

CBRE in China5

CBRE | Page 54

CBRE in China

CBRE first established a corporate office in China in 1988. Since then we have developed full service offices in 13 different cities and a representative presence in a further 9.

With retail consultants and agents in each of our 15 offices we have the local knowledge and national coverage required to advise international retailers on their market entry into China and subsequent expansion throughout the country. Amongst those brands that have retained CBRE’s services are:

W

S

E

C

Beijing

Tianjin

Shenyang

Dalian

Qingdao

Taipei

Shenzhen Guangzhou

N

Wuhan

ChengduChongqing

Hong Kong (Hong Kong & Kowloon)

Hangzhou

Shanghai

Retail Real Estate Research

Location Outlet Strategy and Market Mapping

Store Acquisition

Retail Portfolio Review and Disposition

Franchise Partner Sourcing

Changsha