Retail Shops: a Promising Newcomer to Commercial Real Estate

cctv.com 11-19-2003 09:38

As an important component of the commercial real estate business, the emergence of retail shops in China heralds a promising future for investors. Many people are competing for profits in this area. But instead of cautiously analyzing the high risks and overheated state of the business, they are over-emphasizing its positive sides. Today's business life will show you how to choose a suitable retail shop to buy or to rent as a long-term stable investment.

Mr. Li weidu is looking around Beijing for a suitable retail shop in which to open a restaurant. Today, he came to this office building that has 10,000 square meters of space for such uses.

Li Weidu said, "After several years in the clothing retail business I have saved some money which I can now put into other areas. But in our country, there are limited areas for investment, and buying stocks is very high risk. To invest in a retail shop can assure me of a stable income, so I can devote myself to my main business."

Due to the limited areas for investment in China, many investors turn their gaze to commercial properties. Mr. Li will run the shop himself. According to experts, 50 percent of buyers choose to do so, 40 percent will put them out to lease, and while the rest are speculators.

Wang Cheng, Sales Manager of Silver Tech Tower, Beijing, said, "Since we began to sell retail shops (in April), over 800 group of people have paid us a visit. The majority of our customers are from 35 to 45 years old, and their investment is mainly between USD 1.25 million and USD 3.75 million. They tend to choose to put their money into world famous brands in the restaurant industry. One of the biggest changes is that more educated people are involved in such businesses, some of them graduated from famous universities or come back from abroad. They are more rational investors."

Due to a decrease in profits and increased competition in the residential area, retail shops are becoming a hot target or buyers. In China's some major cities, almost 2 percent of families are putting their money into retail shops, and a further 9 percent plan to do so over the next three years. Since the price of a shop is commonly several times higher than other parts of a building, they have been designed not only in office buildings, but also in many residential areas.

He Yong, GM of Beijing Lotus Business Consulting Management Co., Ltd., said, "The majority of customers to whom we provide massage services are successful people, or white collar workers. They are burdened with a heavy workload that makes them feel tired. They are our target customers. If the majority of people living in a residential community conform to our standards for customers, we are willing to invest in a retail shop there. Then, we will bring greater convenience for relaxation in their daily lives."

As a newly introduced concept, retail shops have been presented in different ways, such as shops in a famous travel site, on a main traffic artery, or adjacent to a greenbelt area. In big cities like Shanghai, the total area exceeds 600,000 square meters. Real estate agents are using more tactics to make their design more competitive.

Mr. Yang has being accepted as a member of this alliance, through which real estate investors plan to attract to the community retail shop managers of a high standard.

Yang Bo, GM of Yuan Heng Li Classic Rosewood Furniture Co., Ltd., said, "Our customers should be both well off and highly educated, because not all rich people can really understand the culture contained in our products. For classical furniture, just a particular style or decoration can stand for a kind of ethnic culture."

"After I carefully studied the situation in this residential area, I believe the developers can attract such people here. So I'm very interested in this community."

Under these conditions, only those with expertise in running retail shops can persuade cautious customers to invest their money, and the final price is usually much higher than real estate investors bargained for. So such projects are commonly outsourced to relevant agents.

Liu Yanxiang, Sales Manager of Silver Tech Tower, Beijing, said, "They can help us scientifically determine the brands and management model for these retail shops. This can help us in building up the image of Silver Tech Tower, and also provide a better service for our future customers in the office building. Our retail shop leaseholders should be world famous brands who will run their businesses here over a ten year period."

Although a stable way of getting returns on investment, retail shops take a long time for buyers to make a profit. From experience, the average period in Beijing is estimated to be at least five years. But the facts are always more complex.

Zhou Xiaodong said, "What we are most worried about is the risk. Some real estate investors don't get government approval before construction. In that case, we can't get a property license."

"I have some doubts as to the reliability of their ads. In their ads they promise us a high profit, but I don't know whether it'll come true."

"After purchasing the shop, we are worried whether it can be leased out or not. If the shop is vacant for many months, I would have to put more money into it. I don't want that to happen."

With customers' worries in mind, real estate investors are trying to realize the full potential of their properties. As an overseas investor with relevant experience, Mr. Ball regards the management of retail shops as a broad-ranging project closely related to the overall design of a real estate site.

Barry J. Ball, Chief Architect of H.K.I. Development Co., Ltd., said, "You can't just put retail on its own, it needs to be supported by surroundings. We have a hotel, there is a very high profile hotel adjacent to the retail, that gives us a certain amount of quality. We also have a very high office population within our site, and also in the surrounding area. So we have all so-called on site population which is good to support the retail."

Beside a customized design and prosperous surroundings, experts also provide many other indexes for evaluating a retail shop. Such elements as popularity of the main shops, average leasing price in the area, and traditional business culture should all be taken into consideration. To satisfy investors' demands, this agent has specially organized a club for property consulting.

Pan Haolong, GM of Red Stone Property Investment Consulting Co., Ltd., said, "We provide free consulting services for investors to help them choose retail shops from the angle of avoiding risks. Secondly, our club includes not only investors but also leaseholders, such as McDonald and KFC. In this case, before they decide to buy a shop, they have a full range of information on leaseholders. Then they can get a reasonable price from a leaseholder and judge whether the business is stable."

As prosperous as it seems, there are still quite a lot of problems in China's commercial real estate sector. Land agents are always too anxious to get back their money, which easily leads to overheating in the industry. But this usually escapes consumers' notice. So, make sure you are absolutely clear about the situation before you decide to buy or rent a shop.

Tu Hongbing, Director of Board of Red Stone Property Investment Consulting Co., Ltd., said, "Especially for overseas companies that have just entered the Chinese market, their biggest problem is a lack of knowledge of China's situation, that is, an information imbalance. Although some overseas investors are living in China, they still know little about commercial real estate. As for residential ads, they contain many inflated claims that are necessary for land agents to promote their products. It is the same with commercial real estate."

Retail shops constitute an emerging and a promising sector in China through which investors are competing to make profits. Instead of analyzing its high degree of risk, most people are paying too much attention to its positive side. This overheating in the retail shop sector which is mainly caused by the fact that investment channels in China are too limited. With more financial tools introduced to China's market as the economy becomes more internationalized, China's investors will have more and more reasonable choices of where to put their money.

Editor:Zhang Wenjie  Source:CCTV.com