China’s electrical automotive makers are paying prime greenback to trace down premium storefronts
Customers viewing electric vehicles in an Xpeng Motors store in Beijing, China on Oct 6, 2020.
Visual China Group | Getty Images
BEIJING – Chinese electric car makers are splashing into prime retail space and capturing storefronts in shopping malls – a new trend bringing relief to China’s commercial real estate developers, still hit by the shock of the coronavirus pandemic.
Electric vehicle manufacturers in China are aiming to attract the crowd of younger people shopping in malls rather than opening independent stores, said Ellen Wei, director of retail for real estate manager JLL China.
These companies can spend roughly twice a square meter compared to what a branded apparel chain could do, Wei said, pointing to big budgets for next year and the demand for premium ground floor space. In fact, a Chinese electric car brand plans to open 400 stores in 20 Chinese cities over the next year, she said, declining to name the customer.
Electric carmakers’ confidence is growing, Wei said, noting that the brands are entering into longer one-year leases with the option to extend them for an additional year. That’s only a 12-month term before that, she said.
After a prolonged slump in the automotive market and concerns about the profitability of electric vehicle startups, many automakers have seen a surge in deliveries in recent months. Additionally, startups Xpeng and Li Auto raised well over $ 1 billion each when they went public in the US this year, while Nio’s shares rose around 1,000% in 2020.
Some Chinese electric car makers have also tested the water with pop-up shops.
“It’s effective because people still want a physical place to see the car,” said Raymond Tsang, partner at Bain. “You probably don’t need a full-fledged 4S dealership as there is no service requirement. And you just need a physical touch to make your decision.”
Office towers are looking for new pricing models
China’s commercial real estate developers are turning to new clients to fill spaces, many of which have been vacant due to the shock of the pandemic. In office towers, companies rent desks and distribute the locations where employees work.
The new rental trends reflect both a way of coping and new growth opportunities as developers look for ways to differentiate themselves in a crowded marketplace.
Despite the demand from electric car companies, the vacancy rate for premium retail properties in Beijing hardly changed at 8.7% in the third quarter, according to JLL. For the city’s class A office space, the vacancy rate was even higher at 13.9%, similar to the previous quarter, JLL said.
In an environment that was challenging even before the coronavirus pandemic, office towers are turning to partnerships and new leasing models.
Most large developers or landlords are trying flexible office space either alone or in partnership with co-sharing workspace operator WeWork China, incumbent CEO Michael Jiang told CNBC in a phone interview last month.
Office units for 10 people or less are very popular as small businesses gradually recover, he said. However, he noted that pre-pandemic aggregate demand is still out of peak and WeWork will have to follow the market for now to lower rents.
In the long term, Jiang expects WeWork’s experience in operating and managing such spaces to attract more partners and help the company. He said practices used in overseas markets, such as renting a desk to multiple company employees, could soon become more widespread in China.
WeWork sold its remaining stake in the China business in September to existing shareholder Trustbridge Partners for $ 200 million.
Some companies are signing contracts for office space in a city or country so that employees can use it as needed, said Rich Bishop, co-founder of Tansuo, a search engine that claims to have the largest coverage for collaborative and serviced office rental space in China.
“There’s this kind of dispersion of employees or … work from a convenient location or near their home,” said Bishop.
The spread of Covid-19 has forced many companies worldwide to implement work-from-home guidelines, causing business owners to rethink their office space needs. In China, relative control over the disease and business cultural preferences means more employees have returned to their offices than in other countries.
Here, rapid changes in the number of employees can increase the demand for more flexible work space.
A traditional lease requires a three-year contract or more, but some companies in China are growing so fast that they may have to expand in just a few months, said Anny Zhang, director of markets for China at JLL.
Combined with a drive to drive costs down, companies may prefer a membership-based model with monthly fees. Under such a system, similar to that offered by flexible workspace operators, office towers could give corporate tenants access to various services and parts of the building, depending on the membership level chosen.