I was writing about the ultimate pain coming to China’s crony, liquidity fueled, ponzi economy way before it was cool. In fact, all the way back in 2009 when I was still working on Wall Street I wrote a piece for clients titled “The Emerging China Risk.” Last year, I highlighted some of the country’s fraudulent “wealth products” in the post: China to Boost the Global Economy? Nope it’s also a Total Ponzi. Well now we see that the overbuilding of ghost malls in the middle of nowhere is finally coming home to roost. We learn from Bloomberg that:
Chinese landlords are forgoing rent and paying to outfit stores for mass-market fashion brands including Zara and H&M, a bid to blunt the impact of a boom in shopping-mall construction that threatens to push up vacancies.
Chinese developers built more malls and expanded into smaller cities as consumer spending and incomes grew, elevating China’s economy to the largest in the world after the U.S.
Half of the 32 million square meters (344 million square feet) of shopping centers under construction around the world are in China, according to CBRE Group Inc. (CBG) About 21 million square meters of retail space is expected to be completed by next year, a 38 percent increase in supply, according to broker Cushman, which tracks 20 cities in China.
Vacancy rates in some less affluent cities could surge to more than 30 percent by next year from as low as 6.8 percent in the first quarter this year, Cushman forecasts.
Developers of some new malls may struggle to reach even 70 percent occupancy, forcing delays in opening, said Michael Zhang, executive director and co-founder of Beijing-based RET Property Consultancy.
At Bund Square, an outdoor mall operated by Shanghai Greenland Group Co. that opened at the southwestern end of the Bund last year, about half of the stores are occupied, including a Nike outlet. Empty shops are covered with boards featuring pictures of champagne glasses and slogans promoting a luxurious lifestyle. Some fourth-floor shops are still under renovation.
Though some stores are under renovation, they have been rented out, Shanghai Greenland spokesman Wang Xiaodong said in a phone interview. He declined to give the mall’s vacancy rate.
Retail rents in the four major cities fell 6.2 percent to 2,090 yuan ($341) per square meter a month in the first quarter from the previous one, while in second-tier cities they declined 6.3 percent to 994 yuan per square meter, according to Cushman.
Retail vacancy rates in Shanghai rose to 6 percent in the first three months this year from 5.4 percent in the previous quarter, Cushman said. They will rise as high as 9.6 percent next year, the broker estimated.
Developers offering to help build storefronts or offer free rents are not uncommon in China, according to Piaget, owned by Cie. Financiere Richemont SA. (CFR)
“It’s part of the marketing strategies of different malls,” Dimitri Gouten, Piaget’s Asia-Pacific president, said. These shopping centers are usually “weaker malls,” he said.
Expect a similar development for all those Americans involved in the “buy to rent” strategy, and expect a Blackstone bailout at some point once they recognize there are no tenants willing or able to pay rent.
Full article here.
In Liberty,
Mike
Follow me on Twitter!
Donate bitcoins: 35DBUbbAQHTqbDaAc5mAaN6BqwA2AxuE7G
Follow me on Twitter.
