China's shopping malls waive retail rents as vacancy rates hit 30pc
Chinese shopping malls are waiving rents as vacancy rates hit 30pc.
Landlords are forgoing rent and paying to kit out stores themselves to attract mass-market fashion brands including Zara and H&M in a bid to blunt the impact of a boom in shopping-mall construction.
Preferential leasing terms were reserved until recently for luxury brands such as Louis Vuitton and Gucci, which are coveted because they bring shoppers into malls.
Now moderately priced labels are being enticed with offers as landlords work harder to fill shops, according to Cushman & Wakefield and RET Property Consultancy.
Consumer demand is cooling as China's economy slows and President Xi Jinping reins in lavish spending by officials.
Big mall operators, including China Resources Land and Hang Lung Properties, can withstand the slowdown at the expense of smaller ones such as Golden Eagle Retail Group, according to Credit Suisse Group AG and Haitong International Securities.
Landlords focused on lower-tier markets will be under more pressure as smaller cities add retail space at a faster rate than larger ones.
Chinese developers built more malls and expanded into smaller cities as consumer spending and incomes grew.
Second-tier cities, including Chengdu, Shenyang, Hangzhou and Qingdao may be stuck with the highest vacancy rates in 2014, according to Cushman & Wakefield.
"The problem we see today in China is that there's really no proper planning," said Sigrid Zialcita, Singapore-based managing director for Asia-Pacific research at Cushman.