The risk of a bubble forming in the shopping mall business has emerged in China, after the number of malls grew by 300-400 a year in recent years, according to Shanghai’s China Business News.
A report published earlier this year by organizations including the China Chain Store and Franchise Association and Deloitte showed 13 of the top 20 cities around the world that have the most shopping centers under construction between 2015 and 2016 are in China.
It has also been forecast that the number of shopping malls in China will reach 4,000 by the end of 2015 and 10,000 in 2025.
However, the market has become saturated, leading to construction delays and difficulties attracting vendors, according to the newspaper. Two shopping centers have postponed opening days, while up to 40% of some malls’ space still await tenants, the report added.
The fact that shopping centers have been built by developers as a way to boost the value of their nearby housing projects led to the drop in business for the malls after the housing market cooled down, said Du Bin, director overseeing the business services department of RET.
“Finding vendors is the top challenge,” said Xu Rong, general manager of Shanghai commercial operations of property company Sincere. According to Xu, the challenge is created by the fact that luxury brands, which should be the main vendors in a mall, have no plans to expand.
The Chinese government’s crackdown on corruption has also hit the consumption of jewelry and luxury goods, industry insiders added. They further pointed out that affordable luxury brands and fast fashion retailers often demand mall operators to subsidize their renovation costs, adding pressure on the mall.
The profit margins of shopping centers have been impacted as a result, according to the newspaper, citing property service Cushman & Wakefield’s statistics showing that the gross profit margin of malls in Shanghai dropped from 9% in 2008 to 4.9% in 2015.