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RETAIL SECTOR

Greater China Real Estate Market Outlook 2020


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GEN Z TAKES THE STAGE


GEN Z TAKES THE STAGE


Gen-Z

China's retail sector is undergoing a major structural change as Gen Z (born during 1998 and 2010) enters the labour and consumption markets. Statistics show that the Gen Z population in China will reach 220 million this year.

Having grown up at a time of rapid economic growth, rising consumerism, the adoption of online channels and the trend towards smaller households, Gen Z display markedly different shopping behaviour compared to their forbears.

Gen Z prioritise happiness, health and well-being, Internet-based activities and experiences. These trends are expected to reshape China’s consumption and retail property market in 2020 and beyond.

Figure 13

THE EMERGENCE OF THE DOUBLE H LIFESTYLE

 

Happiness and Health (Double H) are the two most distinct characteristics of the Gen Z lifestyle and will have a profound impact upon related retail trades.

Euromonitor expects cosmetics, outdoor & sports, toys & games, household goods and pet products will be among the top five retail categories in 2020-2021 in terms of annual sales growth.

Figure 14

An increasing number of retailers are already responding to the rise of the Double H lifestyle. A noteworthy phenomena is the increasing number of retailers from various trades opening pop-up stores and setting up new product lines for cosmetics.

These include:

  • The ice cream retailer Magnum opened a pop-up cosmetics store with Benefit that attracted a daily shopper footfall of 2,000.
  • MINISO set up a beauty store called ‘Wow Color’ in 2019 and plans 300 new stores in tier I & II cities in 2020.
  • KFC launched a pop-up with cosmetics brand The Face Shop to sell dessert.

 

CBRE expects this trend to further evolve in 2020 and expand into other retail trades such as sports and pet shops, boosting demand for retail space.


OMNICHANNEL RETAILING CONTINUES TO THRIVE

 

Domestic retail sales exceeded RMB 40 trillion in 2019, with online sales accounting for 20.7% of this total.

Although e-commerce sales growth will gradually fall to under 20% y-o-y due to its already large scale and high penetration, omnichannel retail is a rapidly growing segment.

As digital natives and experience-oriented consumers, Gen Z is at the heart of driving the integration between online and offline business.

Figure 15

Omnichannel retailers will continue to expand rapidly in 2020. Three Squirrels, a popular food omnichannel retailer, plans to open 300 new stores in 17 provinces including Jiangsu, Zhejiang and Anhui in 2019-2020.

Hema Fresh added 13 new stores nationwide this year prior to the Spring festival, while online cosmetics brand Perfect Diary plans to open 600 new stores in the next three years.

Local governments’ supportive policies will further accelerate the growth of omnichannel retailing in 2020. In Hangzhou, e-retailers achieving an annual turnover of over RMB 3 billion are eligible for rental subsidies for their physical stores.

Figure 16


THE GROWTH OF THE NIGHT ECONOMY

 

A survey by the Ministry of Commerce in 2019 found that more than half of shopping malls’ daily sales are generated between 6pm to 10pm. The ’night economy‘ is a growing trend driven by demographic shifts and the entry of Gen Z into the consumer market and is also emerging as an area of focus for the government.

In 2019, the State Council issued guidance to boost the night economy, followed by a raft of local incentives.

Figure 17

Landlords and retailers are capitalising on the night economy to boost traffic flow and sales.

Many landlords have extended the opening times of their malls and allocated more space to accommodate evening-related consumption. In Beijing, Taikoo Li Sanlitun created “Happy Hour 2.0” and extended business hours to 23:30 while adding another 16 stores with outdoor spaces.

Shanghai Jing’an Kerry Center and Jing’an government jointly set up the Anyi Night Lane pedestrian street at weekends. The peak passenger flow in two days over the weekend reached 60,000, with sales turnover reaching more than RMB 800,000.

F&B retailers are the most active trade in the night economy. Starbucks has opened two bars, Starbucks Reserve Cafe & Bar Mixato, on the Bund of Shanghai and Kerry Centre in Beijing, while Naixue‘s tea has launched Bla Bla Bar in the CBDs of Beijing and Shenzhen, selling alcohol in addition to its traditional offering of coffee and tea.

CBRE expects landlords and retailers to further leverage the night consumption trend in 2020 to increase store sales and rental income.



AGILE RETAIL IS HERE

 

Following disruption to new construction and preleasing caused by the coronavirus outbreak, CBRE expects new retail supply of 6.5 million sq. m., to be completed this year, 20% lower than previous estimates

Vacancy is expected to remain low in core areas as supply will be limited and retailers continue to target new stock for store openings. Most new shopping malls will open in non-core areas, boosting the availability of prime shopping space in emerging submarkets. Similar new malls that opened in 2019 are performing well and reporting high occupancy.

Figure 18

In response to shifts in consumer behaviour and a new emphasis on experience, landlords are building greater agility in their shopping malls. For example, in Beijing, the newly opened SKP-S mall allocated all of its 3rd floor to pop-up stores and also rolled out a placemaking initiative that includes all tenants and is regularly refreshed.

Elsewhere, Shanghai Qiantan Crystal Plaza has leveraged its publish space to set up a sports zone on the 2nd floor, fostering synergy with surrounding sports brands. Shenzhen Uniworld B Zone allows F&B retailers to use outdoor space so they can extend operations to the late hours and attract night time drinkers and diners.

Figure 19

RENTS FORECAST TO REBOUND IN H2 2020

 

The coronavirus outbreak will inevitably lead to a short-term decline in shopper footfall and sales. More than 600 shopping malls nationwide have announced rental holidays ranging from half a month to two months. While these measures will alleviate pressure on retailers, they will drag on landlords’ rental income.

However, rents are expected to rebound gradually in H2 2020 along with consumption, provided the outbreak is contained. A rental recovery in H2 2020 will offset any decline in H1 2020 and ensure full-year rents are flat or slightly down. However, some new malls and existing projects with higher vacancy may be forced to offer more incentives to attract tenants when market conditions return to normal.

Rental growth in 2020 may also receive a boost from the fact that many new malls due to come on stream this year will be managed by landlords with proven track records. 60% of new malls scheduled to open in Hangzhou, Nanjing, Chengdu and Wuhan in 2020 will be managed by experienced landlords, compared to 44% in 2019.

The outlook for rents in Beijing and Shanghai remains upbeat due to their huge consumption base and preferred destination for new brands. In 2019, over 60% of retailers’ first stores in China were either in Beijing or Shanghai, further pushing up rents in core areas and in landmark projects. The downward rental trend in Guangzhou caused by several poorly operated projects is expected to come to an end this year, while Shenzhen will continue to face pressure from the supply side.

Figure 20

Greater China Market Outlook 2020

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