Ikea and Wal-Mart Buy Chinese Retail Space

Ikea and Wal-Mart are just two of the foreign retailers choosing to buy land in China in a departure from renting.

Last year, Wal-Mart, which is the largest retailer in the world, bought land in north-eastern Dalian, and Ikea is to spend $1.2 billion on building 510,000 square meters of malls.

Foreign retailers are increasingly finding it much more economical in the long term to purchase property in China, rather than to continue renting as this option has become much more expensive since a stimulus package of $618 in 2008 helped boost economic growth.

Retail rents in the Wangfujing district in downtown Beijing have nearly doubled since 2007, and have increased by 50% in Shanghai’s West Nanjing Road district, according to Cushman & Wakefield Inc. Demand for retail space contributed to a 42% increase in commercial real estate investments. Prior to the stimulus package, foreign retailers were able to negotiate long term leases.

Wal-Mart currently has 339 stores in over 120 cities in china, and is thinking about buying land in cities which it anticipates will become more populous over time. Around 170 million people have moved into cities over the last ten years, and China has plans to increase in the population in cities from 47.5% to 51.5% by 2015.

Ikea owns eight out of its nine stores in China, but plans to buy more property for future outlets. It is planning substantial investment over the long term. Tesco, who is the biggest retailer in the UK formed a joint venture with HSBC’s Specialist Investments Ltd and Metro Holdings Ltd in March to build three new shopping malls in China with a Tesco hypermarket as the anchor store, in the cities of Fuzhou, Xiamen and Shenyang.