Salient to Investors:

Chinese landlords are forgoing rent and paying to outfit stores for mass-market fashion brands to blunt the impact of a boom in shopping-mall construction that threatens to push up vacancies.

Big mall operators can withstand the slowdown at the expense of smaller ones as smaller cities add retail space at a faster rate than larger ones.

CBRE said half of the shopping centers under construction around the world are in China.

Cushman says developed markets such as Hong Kong and Singapore have vacancy rates of between 6 percent and 7 percent because of a shortage of supply. Cushman expects a 38 percent increase in supply in China by next year, and vacancy rates in some less affluent cities could rise to over 30 percent by next year versus as low as 6.8 percent in  Q1 2013.  Cushman says retail vacancy rates in Shanghai will rise to as high as 9.6 percent in 2014.

Shanghai, Beijing, Guangzhou and Shenzhen are considered the first-tier cities.

Sigrid Zialcita at Cushman said the problem in China is no proper planning, with cities prone to periods of oversupply.

Steven McCord at Jones Lang LaSalle said mall space in China’s four major cities will grow 40 percent by the end of 2015, versus double in 16 smaller cities.

Michael Zhang at RET Property Consultancy said some new malls may struggle to reach even 70 percent occupancy, forcing delays in opening.

Jinsong Du at Credit Suisse said China’s housing market may be oversupplied, but China’s commercial property sector is definitely.

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