Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)
Issue link: https://sct.epubxp.com/i/122387
U.k.–based hypermarket chain tesco has ventUred into lower-tier chinese markets with its lifespace shopping malls. under the MixC name, while domestic developer Cofco continues to grow its property count with new Joy City retail centers. "It is impossible to ignore the major Chinese developers in the market," Hawkey said. The successful projects have inspired less-competent investors to try their own hand at retail development, however. The resulting poor site selection and overbuilding combined with a slowed economy have left many landlords in China struggling to fill malls and shopping centers with tenants. Many Chinese provinces experienced speculation-driven residential overbuilding over the past decade, and the retail projects that followed those unoccupied rooftops now suffer high vacancy rates, says Malcolm S. McNeil, a partner at Fox Rothschild, Los Angeles, where he is chairman of the international practice group. "Las Vegas is probably the closest model to what happened to the housing market in China," McNeil said. "In neither example did anybody know how high was up, meaning the market was driven by speculation for future demand [that failed to materialize]." 250 SCT / M a y 2 0 1 3 McNeil has helped several Western retailers open stores in China, and in recent years he has encountered pressure from landlords attempting to fill available space in poorly performing properties. Specifically, retailers seeking store space in a top-tier market like Shanghai face pressure to accept multicity leases that help fill space in less-desirable properties or markets. "Imagine that to have a Louis Vuitton store on Rodeo Drive, in Los Angeles, you [also] have to open a store in Steubenville, Ohio," McNeil said. "There may not be many buyers in Steubenville for $3,000 purses." So far McNeil has convinced landlords that his clients must stick to the markets that provide access to a targeted clientele, turning down those unrequested leases offered in package deals. "You can resist, but it is becoming harder and harder for me to do so," McNeil said. Landlords with space in the strongest Chinese markets are less willing to negotiate with retailers refusing to take space in their weaker properties also. "A landlord that has a full mall is going to be less willing to negotiate than the owner of one that is half empty," he said. International developers seeking to launch retail properties in China should identify cities where capital is flowing in order to promote residential growth or commercial activity, McNeil suggests. Then investigate local government incentive programs, he says, because cities market themselves. Real estate in China typically involves long-term ground leases from a government landowner such as the province, and the number of years on the lease term is negotiable to provide a good fit to the intended land use. Whether the retail market is overbuilt in China varies from city to city and by submarket. Many of the properties wrestling with vacancy are poorly designed or badly located. Hawkey is concerned that inexperienced developers in China will further burden the shopping center market with vacancies. In fact, Cushman & Wakefield is projecting a significant rate of mall failures this year and next. At the same time, many well-located properties are thriving. Hawkey says experienced developers have the best opportunity to maximize chances for success. "While the market for shopping centers is busy, and in many cities there will be a degree of oversupply emerging, there are still good opportunities for the mostexperienced overseas developers whose attention to detail through the conception, design, construction, leasing and management process gives them a real competitive edge in the market," Hawkey said. Tremblay agrees that some sectors in China are well developed. Taubman is relying on rigorous assessment and analysis to pursue investments in first- and second-tier cities where urbanization is stable and growing. "It is important to look for long-term growth and be able to adapt as each market requires, whether that be in the tenant mix, retail design or even the platform with which you enter," Tremblay said. "It could be a premium shopping mall or an outlet center — the key is to consider what the consumers need and exceed their expecSCT tations."