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