International demand jacks up retail rents in Shanghai
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Heated demand from international retailers jacked up the city's retail rents by 6.8 percent in the second quarter from a year earlier, and demand for prime retail space will remain robust particularly with the boost from the ongoing Expo, said analysts.
Average prime retail rents increased 6.8 percent year-on-year in the second quarter and reached 49.5 yuan per square meter per day in Shanghai. During the same time, the vacancy rate fell 1 percent to 0.8 percent, according to a report from real estate service provider Jones Lang LaSalle (JLL).
Increasing occupancy of properties along Huaihai Road was the reason for the lower vacancy rate, said Anthony Couse, managing director of JLL. "Demand from retailers for prime locations limited the prime retail vacancy rate under 1 percent," he said.
Demand in the Shanghai retail market intensified between April and June. A growing number of high-end retailers such as Louis Vuitton, Zegna, Gucci, Dior, Tiffany, Hermes and Prada opened in the emerging luxury shopping destinations of Huaihai Road, the Bund and Shanghai ifc Mall of Lujiazui in Pudong New Area.
Other retailers actively followed suit. International fashion company Inditex Group opened multiple new locations across the city, while US tech giant Apple opened its second Apple Store in China at Shanghai IFC.
The retail sector's strong performance in the first half stabilized retailers' confidence, said Colliers International, a leading property provider. Total retail sales increased 15.2 percent in the first five months year-on-year. In addition, the Expo 2010 Shanghai is acting as a catalyst for brands to expand or strengthen their foothold in Shanghai, said Colliers.
"Although the Expo will not directly raise retailers' sales immediately, their existence in the nation's financial hub is the best advertising for their branding and market awareness," said Regina Yang, an analyst with Knight Frank, a property service provider.
"The expansion of international brands will continue beyond the Expo," said Yang.
She said British retailer Marks & Spencer is also planning to open a third store in the city. Meanwhile, British luxury department store Harrods was also reported to be considering opening an outlet in Shanghai.
Given the fact that some projects postponed their pre-leasing due to the Expo, Colliers expected over 200,000 sq m of retail space to enter the market in the second half this year, and the majority of the new supply will be located in non-prime traditional downtown areas.
Analysts believed the new supply will raise the city's overall vacancy rate, while rental rates will edge up 5 percent overall.
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