Canadian Report Finds Empty Mall – Discovers China Retail Space Glut

Given the double-digit growth in consumer spending in China over the last few years, it is no surprise that retail real estate is generally regarded as the hottest sector of the country’s property market. Unless, of course, you are Canadian.

As a native of Minnesota, I’ve always had a soft spot for our neighbours to the north, who despite what you might be seeing in the NHL playoffs, are generally a pleasant and civilised bunch. However, thanks to a recent report in Canada’s newspaper of record, the Globe and Mail, this nation of nice guys may have gotten a bum steer regarding retail property in China.

The article in question was penned by veteran correspondent (but apparent China real estate neophyte) Carolyn Wheeler, who based on a tour of an unsuccessful mall development in Beijing has figured out that China has an oversupply of shopping centres. By the same logic, since I live between Malones’ and the Big Bamboo, I should hypothesise that there are expat pubs on every block throughout China. (It’s a beer glut! Or maybe a beer gut glut!)

Misconstruing a welter of quotes which offer at best tangential support to her central point, Wheeler asserts:

The many half-empty corridors of this complex of five sprawling towers, which has been open two years (referring to a project by the developer SOHO China in Sanlitun), is an indication of a wider trend, retail analysts are beginning to warn. Caught up in the heady rush of the world’s largest consumer market and a booming economy, Chinese retail developers may have built too much, too quickly.

Simply put — NOT!

The maddening fact of retail real estate is that it is half-business and half-art. Getting a mall right requires not just timing, location and price, but creating an attractive retailer mix, hiring an experienced leasing agent and maybe even bringing in a top feng shui master.

Some of China’s most experienced real estate developers have sunk cash into major mall projects which flopped, despite being launched in bustling areas in the middle of a retail boom. Just ask Morgan Stanley Real Estate about their adventure on Huaihai Lu in Shanghai.

None of this means that there is an oversupply of retail space.

In fact, China’s shoppers are still out in force, there are more international retail brands entering the China market than ever before, the retailers that are already here are generally planning new shops, and the country’s domestic brands are rapidly staking out new turf in the developing cities.

What those failed projects mentioned above do mean is that if you don’t know what you are doing, and don’t have the right execution, you can still lose your shirt (and perhaps your pants too) on a mall project.

However, just keep in mind that for every horror story of empty malls in Guangzhou, there are probably 50 developers who are driving shiny Maseratis and picking out new mistresses after their retail developments hit it big. So yes, there are a lot of dumb, doomed shopping centres being built right now, but this does not mean there is an oversupply of quality space managed by people who know what they are doing.

Still not convinced? Here are a few retail real estate headlines from last week that show the ongoing interest that retail brands, and real estate developers, have in investing in China’s shopping scene.

• Perry Ellis Announces Joint Venture to Open Shops in Greater China
• Luk Fook to Open 30 New Jewelry Stores in China
• Phillip Lim Talks Expansion, China at New Saks Shop-in-Shop
• CapitaMalls to build $458m Beijing shopping centre

So it could be that investors with several existing malls in China are ready to plunge another $458 million into a new mall project because they haven’t figured out that the market has turned. And it could be that major brands from the US and Asia are planning new shops by the dozen because they have lost the plot.

Or it could be that while Canada cranks out some lovely people, and Vancouver has some great Chinese restaurants, that the editors of the Globe and Mail can’t tell a cottage from a condo when it comes to China’s retail real estate scene.