September 21, 2016
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33%: THE PREDICTED DECLINE IN AVAILABLE RETAIL SPACE IN CHINA OVER THE NEXT FIVE YEARS
China will lose one-third of all its physical retail stores over the next five years, according to a report issued by the Chinese Academy of Social Sciences’ Academic Press. The report details China’s business development.
“Real estate developers have taken on large-scale retail development projects in recent years. These projects are often required by local governments’ zoning rules that stipulate retail and office space well in excess of the market needs,” said Kenneth Rhee, founder and CEO of Huhan Advisory.
“The oversupply of commercial properties is closely tied to tax rules. Commercial properties represent an important source of steady tax revenue for local governments, providing a strong incentive to encourage or require the development of commercial properties. The owners of commercial properties pay property tax amounting to roughly 17% of rent revenues. In contrast, local governments do not levy tax on residential properties, except at the time of title transfer.”
Rhee went on to say that retail space oversupply is being impacted by e-tailing growth, which represents approximately 12% of all retail sales in China. The number is anticipated to increase by 20% during the next five years.
Due to e-tail expansion, evolving consumer trends and a slowing economic growth of 6.5% annually, “retailers are becoming more cautious about opening new stores, and are significantly reducing the size of the typical store format,” Rhee said.