A mall-building spree could end badly
12 Jul 2013
Week in China
At Chengdu’s New Century Global Centre, you’ll need a comfortable pair of shoes and a map to get around. At 1.7 million square metres, the shopping complex is huge. Plus you won’t want to lose your way as you stroll between the replica Mediterranean village and the indoor water park.
Unveiled last month as the “largest freestanding building in the world”, the New Century Global Centre is 500-metres long, 400-metres wide and 100-metres high. That makes the structure roughly 20 times the size of Sydney’s Opera House and three times the size of the Pentagon.
What will visitors find inside its glassy walls? It’s pretty standard as far as mega-structures go: a 14-screen IMAX cineplex, shops, restaurants, offices, two five-star hotels and an Olympic-sized ice skating rink.
In addition to the water park, it also boasts a massive artificial beach (with realistic sunsets and sea breezes, thanks to a huge LED screen and some strategically-placed air vents).
In the promotion video for the complex, the developers China Exhibition and Travel Group describe it as “a landmark that commands the world and is looked upon by the world with respect”.
You might be forgiven for thinking they are talking about the Taj Mahal or the Eiffel Tower rather than a shopping mall…
In fact, they seem an optimistic bunch. But for the time being The Global Centre seems to be having a hard time finding enough tenants. According to local news portal Chengdu.cn, only 40 out of 121 retail spaces were operating at opening. “The Global Centre has a thick smell of paint,” the reporter observed.
The problem we see today in China is that there’s really no proper planning
Another problem is that the mall will soon be competing for business, with four more large shopping complexes due to open in Chengdu by the end of the year.
In fact, the city is expected to release as much as 4.3 million square metres of new shopping space over the next three years, an increase of 83% on today, says CBRE, a property consultancy.
Chengdu is not the only city experiencing a mall-building frenzy. Tianjin, too, is constructing 2.1 million square metres of shopping space. Shenyang, Chongqing, Wuhan, Guangzhou and Hangzhou are scheduled to deliver over a million square metres each over the next three years.
To tap growing consumer spending, 50 mega-shopping complexes (i.e. those over 35,000 square metres) have been built in China so far this year, says 21CN Business Herald.
And half of the 32 million square metres (344 million square feet) of shopping centres under construction worldwide are in China, according to broker Cushman & Wakefield.
“Competition in China’s commercial property market is very fierce, especially at those new malls at non-central locations in second- and third-tier cities,” Carrie Liu, general manager for development at Shui On Development, a property developer, told Bloomberg.
Small wonder then that analysts are beginning to express concerns about an oversupply of shopping malls, especially in third-and fourth-tier cities. The worry is that vacancies at shopping centres in less affluent cities could quadruple to more than 30% by 2014.
Facing a glut of retail space in some locations, landlords will have to work to attract tenants. Developers in smaller cities have already been forgoing rents or paying to outfit stores for mass-market fashion brands including Zara and H&M because they bring shoppers into malls.
“The problem we see today in China is that there’s really no proper planning,” Sigrid Zialcita, managing director for Asia-Pacific research at Cushman, told Bloomberg. “There are a number of cities prone to having periods of oversupply.”
That sounds like bad news for Chengdu too. Cushman reckons that the capital city of Sichuan will be one of the places struggling with the highest mall vacancy rates in China next year…
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