The construction binge of upscale shopping malls in China's second-tier cities over recent years has caused a short-term excess supply, and it needs to wait and see if the market can absorb the supply in the long run, warned Knight Frank, a British residential and commercial property consultancy.

The vacancy rates at high-end malls in Shanghai, Beijing, Guangzhou and Shenzhen – the nation's top four cities – averaged 8.4% in the first half of this year, and the percentage for second-tier cities was 10.5%. Shenyang, the capital of Liaoning province in the northeast, and Chengdu, the capital of Sichuan province in the southwest, reported the highest rates of 17% and 16.2% respectively, according to statistics compiled by Knight Frank.

"The government of Shenyang offered preferential treatment to Hong Kong developers to build prime-location malls and office buildings a couple of years ago," Knight Frank Greater China Chief Lin Haowen said. "The developments have finished or being finished."

Monthly rents at upscale malls in second-tier cities rose 10% year on year to ¥865 per square meter between January and June, while monthly rents at same-level malls in the top four cities were up 8% to ¥1,480 per square meter, Knight Frank said, adding that the rents in Chengdu grew at a much faster pace.

"Chengdu, one of the largest Chinese cities in terms of retail sales, has attracted a raft of developers, but many malls there are not managed properly," Lin noted. "So supply keeping increasing is not good news."

Retail sales in China jumped 14.1% in the first nine months of 2012 from a year earlier, moderating from the 14.4% seen during the first six months, according to the National Bureau of Statistics.

Knight Frank reckons that this is a momentary slowdown as the Chinese government endeavors to drive the economic growth by consumer spending.


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