Firms betting big on Shanghai commercial property

Even residential developers like Yanlord are padding their office and retail portfolios, says Colliers.

Choking restrictions on residential properties are convincing firms with interests in Shanghai to load up instead on commercial properties.

"In 2011, three of four major residential developers -- Vanke, Poly and Gemdale -- announced their intention to increase the amount of commercial real estate in their portfolios to approximately 20%. Other residential developers such as Longfor, Yanlord and Evergrande have also announced their intention to invest further in the commercial property market," said Colliers International in a release attached to a new Shanghai retail property report.

"“In 2011, the effect of the control measures has started to take hold. We don’t believe such measures will ease in 2012, as lifting curbs at this phase could possibly result in retaliatory rebound. We expect the overall residential market may experience a setback of 15% to 20%, while the commercial sector, especially retail properties, will attract more investors in the future due to its high return on investment,” said Lina Wong, Managing Director of East and Southwest China and China Investment Services at Colliers International.

Colliers also noted that Shanghai’s retail investment market was active in the fourth quarter of 2011.

"One of the most impressive transactions was CapitaMalls’ acquisition of a 50% equity share in CapitaMalls Hongkou Plaza and CapitaMalls Minhang Plaza projects for RMB4.2 billion. In addition, Jin Lin Tian Di, a high-end retail property on Xintiandi’s Madang Road with a total gross floor area of 3,167 square meters, was also transacted during the period," it said.

Colliers predicts that in 2012, 850,556 square meters of new supply is expected to launch, including APM on Huaihai Road Middle and L’Avenue in Hongqiao CBD.

Asked about the market outlook, Wong commented, “The significant increase in total stock of retail property in 2012 will raise vacancy rates in the short term, driving more competition in both leasing and investment markets. But bolstered by robust demand from retailers domestic and abroad, average rental rates in shopping malls will keep going up steadily. And developers seem to have full confidence in the market dynamic. Judging from all these factors, Colliers thinks retail properties will be an investment hit in the New Year.”