UNCOVERING OPPORTUNITIES IN ASIA’S SHIFTING RETAIL … · 2019-07-03 · Cushman & Wakeield is...

NOVEMBER 2013

UNCOVERING OPPORTUNITIES IN ASIA’S SHIFTING RETAIL LANDSCAPE

A Cushman & Wakefield Publication

Cushman & Wakefield is the world’s largest privately held commercial real estate services firm. Founded in 1917, it has 235 offices in 60 countries and more than 13,000 employees. The firm represents a diverse customer base ranging from small businesses to large multi-national firms. It offers a comprehensive range of services within five primary disciplines:

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INTRODUCTION

The Asian retail real estate landscape is shifting.

In sharp contrast to just five years ago, many retailers now believe that they cannot be viewed as global retailers without a strong presence in

Asia. Discussions on strategy increasingly view Asia as a key source of growth for the coming decades, and also as a source of innovation and new ideas. Retailers and developers alike are now changing their offerings to address the more experienced and demanding retail consumers of today’s Asia.

CUSHMAN & WAKEFIELD 3

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CURRENT RETAILING TRENDS

Prime retail real estate in Asia Pacific continued to reach new levels based on solid economic drivers, strong tourism and long term policies that stimulate growth throughout the region. For the second year in a row, Hong Kong retained its position as the world’s most expensive city for retail rents1. Average rents reached new records in its prime shopping districts, with shop rents in Causeway Bay the highest at US$ 3,017 per square foot per year. While growth noticeably slowed in the first half of this year, retail rents on prime streets in Hong Kong jumped another 20% from 2012 and have more than doubled since 2009. Ginza and Omotesando in Tokyo, Pitt Street Mall in Sydney, and Myeongdong in Seoul also featured in the top 20 rankings.

H1 2013 RETAIL RENTS BY CITY

0 500 1000 1500 2000 2500 3000 3500

Hong Kong

Tokyo

Sydney

Seoul

Beijing

Brisbane

Shanghai

Melbourne

Singapore

Kuala Lumpur

Perth

Adelaide

New Delhi

Taipei

Ho Chi Minh City

Hanoi

Mumbai

Gurgaon

Kolkata

Bangkok

Jakarta

Bengaluru

Pune

Chennai

Hyderabad

Manila

Ahmedabad

3,016.86

984.44

850.34

732.16

435.92

425.17

411.77

382.65

353.86

322.84

297.62

280.61

252.42

239.19

222.96

211.81

151.45

121.16

121.16

111.43

109.67

84.81

70.68

60.58

52.50

37.42

30.29

*In US$/sf/year

1Main Streets Across the World 2013-2014

4

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Retail demand is closely related to retail spending. Retail sales in the region have grown 21% for the five years through 2013, most rapidly in Hong Kong, China, Vietnam, Indonesia, India, and South Korea. Rapid growth and sweeping economic changes have raised retail demand across the region since 2009. Strong GDP growth of 6-7% post global financial crisis to 2011 has strengthened labor market conditions, supporting consumer confidence and household disposable incomes2, and in turn, consumer expenditures. Broadly, unemployment rates have fallen from 5.6% in 2009 to 5.2% this year, and are substantially lower than their pre-crisis averages in several cases, including Hong Kong and Singapore, by more than 1.0 percentage point. At the same time, real wages have continued to climb across the region. Domestic demand has also benefited from the continued easing of macroeconomic policies across most of the region. Many countries have either loosened their monetary policies or paused the tightening cycles. Retail sales have thus been on an upward trend, with private consumption as a share of GDP at 35.9% this year compared to 31.0% in 2

SOLID ECONOMIC DRIVERS While Asia is already a key market, it is also a market full of potential. The region has seen economic growth over the last decade at levels significantly higher that the U.S. and Europe, and that growth is projected to continue. Economic gains will lead to stronger spending, but in addition Asia looks set to benefit from positive demographics in many countries, positive patterns in tourism and shifts in economic structure as emerging markets begin to mature.

2014 GDP GROWTH AND INFLATION RATE

Source: Roubini Global Economics

7.2%

5.1%

India

2.8%

7.0%

China 2.9%

3.2%

South Korea

2.1%

1.2.%

Japan

2.0%

3.0%

Taiwan

2.1%

1.8%

Australia

3.0%

4.5%

Malaysia

2.7%

3.3%

Thailand

6.3%

6.0%

Vietnam

3.4%

6.3%

The Philippines

3.9%

3.3%

Hong Kong

3.1%

3.7%

Singapore

6.0%

5.5%

Indonesia

3.4%

GDP

INFLATION

5.1%

Asia Pacific

2Household annual income of US$5,000, defined to be the minimum necessary to participate in economic activity beyond subsistence.


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CHANGE IN TOTAL RETAIL SALES, 2012 - 2013

1% 2%

2%

-2%

4%

6%

8%

10%

12%

3% 4% 5% 6% 7% 8% 9%

Hong Kong

China

VietnamIndia

Indonesia

Philippines

Malaysia

Singapore

Thailand

Taiwan

South Korea

Australia

Japan

Source: Euromonitor International, Roubini Global Economics

GDP GROWTH

% C

HA

NG

E IN

TO

TA

L R

ETA

IL S

ALES

STRONG TOURISM Sound economic fundamentals, combined with growth in air travel connectivity and affordable travel, have also been instrumental for stimulating tourism. Based on MasterCard Global Destination Cities Index report, major cities within the region have prominently placed among the top 10 rankings. The importance of tourist arrivals to retail demand and rents is underscored by their high levels of retail spending. Notably, tourist spending makes up as much as 30% of the total retail sales, especially among these top travel destinations. In the case of Hong Kong, the biggest influence on retailer demand is mainland China; nearly three out of every four tourists are from the mainland3.

3Based on 2012 data.

GLOBAL TOP 20 DESTINATIONS 2013

0 10 20 30

Riyadh

Taipei

Vienna

Tokyo

Amsterdam

Shanghai

Rome

Milan

Seoul

Barcelona

Kuala Lumpur

Dubai

Istanbul

New York

Singapore

Paris

Macau

London

Bangkok

Hong Kong

0 10 20 30

Amsterdam

Rome

Vancouver

Milan

Shanghai

Kuala Lumpur

Los Angeles

Taipei

Istanbul

Barcelona

Dubai

Sydney

Seoul

Tokyo

Singapore

Bangkok

Paris

London

New York

Hong Kong25.90

15.98

15.96

14.28

13.92

11.75

11.52

10.37

9.89

9.20

8.41

8.19

6.83

6.71

6.50

6.35

5.80

5.37

5.19

5.05

VISITOR ARRIVALS (millions) VISITOR SPENDING (US$ Billions)

19.6

18.6

16.3

14.6

14.3

13.5

12.7

10.8

10.4

10.4

8.9

8.6

8.1

7.8

7.8

6.9

6.6

6.5

6.4

6.3

Note: Based on international overnight visitors; Hong Kong’s figures includes tourists from Mainland China

Source: MasterCard International

LONG-TERM ECONOMIC DRIVERS Ensuring stable growth in the long term has compelled policy-makers to implement structural reforms that will rebalance economic activity and rely more on private domestic demand as a driver of growth. China has been at the forefront, with plans to strengthen the social safety net, boost wages, and improve access to low-income housing (as outlined in the 12th Five Year Plan) to help catalyze Chinese consumer spending. The continued liberalization of trade within Asian economies, as well as new free trade agreements with other emerging and advanced economies globally, are also set to impact investments and private consumption and transform the retail landscape in the region.


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ECONOMIC GROWTH ON TRACK, RETAIL OPPORTUNITIES IN SIGHT

The growth story for the Asian retail market is far from over. The impact of the increasing number of consumers in Korea and Japan approaching retirement will be offset by fast-growing emerging markets in the region where more than 40% of the population belongs to the 25-54 age cohort. This new consumer class will be the biggest spenders as they set up homes, raise families, and therefore pump a lot of money into the region’s retail market. Additionally, the region will continue to benefit from positive reforms and supportive regulatory framework that should foster more sustainable, balanced, and inclusive economic growth and in turn, fuel the rise of the middle class. Consequently, overall retail sales growth is expected to accelerate over the next four years in China, India, Indonesia and the other emerging markets in the region, according to Euromonitor International.

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DEVELOPED MARKETS

JAPAN Japan is Asia’s most developed economy with total retail sales ranking second after China at US$1.3 trillion in 2013. Japan now has a full range of major international brands, with recent entrants including Hollister, Old Navy, American Eagle, Tiger Copenhagen, Free People, Tommy Bahamas, and Charles & Keith. In addition, Japan has a range of home grown brands that speaks of its eclectic culture. Japanese brands are increasingly expanding throughout Asia including Uniqlo, Muji, Nitori, Azul by Moussy, United Arrows, Point Inc. and more. Larger retail formats are also heading overseas with Mitsui Fudosan and AEON Group developing outlets and shopping centers, while department store operators including Takashimaya and Ito Yokado are also active in global markets. The top Japanese malls, Lazona Kawasaki Plaza, AEON Laketown, and LaLaport Tokyo Bay have achieved annual sales of around US$ 720 million, US$ 670 million, and US$ 580 million respectively in 2012.

AUSTRALIA A strong base of local retailers provides strong competition for international retailers entering the country. Nonetheless, as the fourth biggest market in Asia with retail sales projected at US$ 233 billion in 2013, Australia is increasingly attracting international names. Sydney and Melbourne have a full range of luxury retailers such as Prada, LV, Dior, Chanel, Bvlgari, Armani, and Tiffany. Luxury designer labels such as Marimekko and Reebonz have entered the market recently and the Japanese fast fashion giant, Uniqlo is debuting with a flagship store in Melbourne

next year. H&M are also opening shortly in Melbourne and Sydney while Zara and Topshop have opened a number of stores over the last 24 months. Australia is home to some of the top performing malls in Asia with Chadstone Mall (Melbourne) generating sales of around US$1.3 billion while Westfield Bondi Junction (Sydney) has sales approaching US$1 billion.

HONG KONG While Hong Kong is a city market , accounting for just over 3% of China’s retail sales, it is still an exceptionally important market. Hong Kong often exhibits the highest sales productivity in Asia, and indeed for many brands, globally. Hong Kong is home to many of the best performing centers in Asia with Harbour City achieving US$4.0 billion in sales in 2012, which is about 7% of total retail sales in the city, while Times Square achieved US$1.2 billion. The city is very densely populated and also benefits from very strong tourist spending. Tourists accounted for 33% of Hong Kong retail sales in 2012, with the bulk of this being visitors from mainland China. Hong Kong is also a key showcase for international brands who want to create awareness among the well to do mainlanders who travel.

Taxes on luxury goods are substantially lower in Hong Kong than in mainland China, so it is these goods in particular that are popular with mainland shoppers. As a result, luxury goods and watch and jewelry retailers have expanded rapidly in recent years and continue to dominate the space in prime locations. While the market is being affected by new trends - for example the rising attraction of long-haul destinations among affluent mainlanders, and China’s recent clampdown on gift-giving – jewellery and

2013 ANNUAL DISPOSABLE INCOME PER CAPITA BY COUNTRY

DEVELOPED MARKETS

EMERGING MARKETS

: represents 100 millions for total population

Source: Euromonitor International

THAILAND

$3,580

PHILIPPINES

$2,045

DEVELOPED MARKETS

$44,276

MALAYSIA

$5,817

CHINA

$3,925

VIETNAM

$1,086

INDIA

$1,233

INDONESIA

$2,099

JAPAN

$30,954

HONG KONG

$29,144

SINGAPORE

$27,779

SOUTH KOREA

$13,083

watches was still the fastest growing retail category in August 2013 with year on year growth of over 20%. This trend is making it tough for some retailers to compete for properties in key retail areas. In Canton Road for example, the majority of transactions in 2013 have been with gold and jewellery retailers.

SOUTH KOREA With sales of US$ 187 billion in 2013, South Korea is the fifth largest retail market in Asia Pacific. With the 2008 financial crisis continuing to affect development confidence, the supply of shopping centres and future development pipeline is limited, with the result that existing shopping centres are among the best performing in Asia. Growing tourist arrivals to the peninsula, fueled in part by the interest in Korean pop culture, will continue to support the retail sector. International fast fashion

brands including Zara and H&M have been expanding in market, competing with home grown fashion brands such as 8 Seconds. Korean retailers are increasing looking to expand in China and

Japan with brands such as E-Land, Beanpole, Basic House and CJV cinemas very active internationally. The country is the second largest market globally for outdoor sports equipment. Seoul’s

retail scene has both main street stores, such as Myeongdong, as well as malls. Times Square, one of Seoul’s mega malls, had annual revenues exceeding US$ 1 billion in 2012.

SINGAPORE The island’s state per capita GDP has increased by over 50% in the last ten years, driven by the government’s efforts in the earlier part of the century to revamp the economy into a high income nation. Tourism has surged on the opening of the Integrated Resorts and the country remains a shopping destination for the Southeast Asia region, with Indonesians and Malaysians forming a huge part of its tourist arrivals. The retail sector has undergone a renaissance in recent years and the republic is now a vital stopover for the likes of H&M, Tory Burch and Abercrombie & Fitch to name just a few.

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EMERGING MARKETS

CHINA China is now Asia’s largest retail economy with sales of US$1.7 billion forecast for 2013. As such it has become the primary target for many retailers entering Asia, and the market is now among Asia’s most international. Retail growth in China has remained vigorous while signs of moderation have surfaced as the economy undergoes a restructuring process. Tier 1 cities Beijing, Shanghai, Shenzhen and Guangzhou have the most wealthy and brand-conscious consumers and now show retail sales growth of 9% to 16%, while in major tier 2 cities, such as Chengdu, Wuhan, Nanjing, Shenyang and Chongqing, retail sales growth is higher ranging from 13% to 17%. Overall, we expect a steady rise in income levels to nurture an aspiring middle class population and, barring any economic surprises, this should underpin balanced retail growth for the next decade.

While growth in retail demand is unprecedented, the surge in supply is stronger still, and as a result, many major cities in China have the potential for some measure of oversupply. Oversupply stands to affect weaker projects in the market; expect suburban locations and inexperienced developers to be most vulnerable, with high vacancy and project failure in extreme cases. Oversupply will have little impact on prime rents which will continue to exhibit strong growth as retailers compete for key locations to define their brand in China and generate the strongest sales. The top retail centers in China including Shin

Kong Place in Beijing, Grandview Plaza Guangzhou, MixC Shenzhen achieved sales of around US$ 1 billion per annum and rising.

The recent crackdown on gift-giving to government officials has had a significant impact on some luxury brands, notably those focused on watches and accessories. A study by Italian luxury goods association Altagamma and consultants Bain expects Greater China luxury sales growth to fall to 6-8% in 2013, down from an estimated 20% in 2012. While sales growth may slow, China’s love affair with luxury is expected to last for some time. Despite sometimes limited spending power, luxury demand is likely to broaden beyond the best known brands as more sophisticated consumers begin to discover their own style.

INDIA India is Asia’s 3rd largest retail economy after China and Japan, with projected sales of US$ 412 billion in 2013. India’s retail market is currently just one fourth of the size of China, however the market is opening up and with a young population where average age of the workforce is below 30 years, the market has a strong potential. International retailers have historically entered mainly through partnership and retailers such as M&S, Inditex, and Lacoste have found significant success through this route. Now as investment regulations have relaxed, a new generation of retailers including H&M are investigating the potential to enter the market directly without a partner.

The retail growth story in India has taken off swiftly in the last decade largely supported by a buoyant economy and a cohort of higher than average spending adults (43 million with incomes

higher than US$10,000) along with a large workforce aged 25 to 54 that accounts for about half of its population. Luxury retail has a limited presence in the top 5 cities in the country. However a broad range of brands are already in the market including LV, Montblanc, Bvlgari, and Richemont. Mid-priced fashion and food and beverage (F&B) segments have managed to grow rather quickly and have expanded into several Tier 2 and Tier 3 cities. Forever 21, M&S, Zara, Clarks, Lacoste, Starbucks and Dunkin Donuts are among the more active brands expanding in the market.

INDONESIA With a population of over 200 million and a maturing economy, Indonesia has retail sales of US$ 145 billion in 2013, making it Asia’s 6th largest retail economy. It has grown steadily on the back of rapid economic development that has given rise to a growing middle class. Steady growth in retail sales of 5-6% for over a decade has also prompted international retailers to expand their footprint in this Southeast Asia’s rising star. Jakarta, the nation’s capital and the center of commerce and government, has been the focus of retail investments, however, with the recent regulations ceasing all new permits for shopping

centers in Jakarta, the focus of development is shifting to include other major cities such as Surabaya, Medan, Bandung, Balikpapan, Makassar and others. Foreign hypermarket brands are active across the country and Carrefour, Lotte and Giant are among the international hypermarket operators aggressively competing with local players such as Hypermart, Indomarco Prismatama and Hero to tap the retail market in urban areas. A young population is also another major factor attracting retailers to Indonesia, with the group aged 25-54 years accounting for more than 40% of the total population. H&M, Uniqlo, Zara, Quicksilver, Rip Curl and Galleries Lafayette have entered the market recently taking note of the strong economic fundamentals and the scale of opportunity the country can offer over the next 15-20 years.

THAILAND Thailand is Asia 8th largest retail economy country with sales of US$ 81 billion in 2013 and is next in line to Indonesia in emerging markets. Booming tourism and rising incomes of its spending class population have certainly fuelled retail growth in Thailand. Retail sales in Bangkok have been growing at an average of 9% annually for over a decade, and the city accounts for more than half of national retail sales, supported

by strong tourist spending. Uniqlo is expanding steadily while Pull & Bear, Zara Home, Sephora and Victoria’s Secret have entered the market recently. Rapid expansion in F&B and convenience store network in the country indicates rising incomes at the low end of the income chain, and a market poised for a steady growth in F&B and fast fashion segments over the next 5-10 years.

VIETNAM Vietnam closely follows Thailand with retail sales of over US$ 67 billion in 2013. The return of stronger economic growth is set to lift living standards and aspirations, and certainly presents sustainable, long-term opportunities for retailers. Ho Chi Minh City, which is the nation’s economic center, is typically the entry point for international retailers. Notably, retail sales have grown at an annual average of 11% during the last decade. Recent expansions by Aeon – Livingmall, Lotte, Lego, Louis Vuitton, Ferragamo, Uma and the entry of Dior, Starbucks and Dunkin Donuts, among others, indicate growing opportunities in Hanoi and Ho Chi Minh City. In terms of shopping centre supply the market has been active with Vincom’s 230,000 sq.m Mega Mall – Royal City, opening in 2013 in Hanoi. While new developments are attracting the crowds, first generation shopping centers are in some cases suffering due to increased competition.

THE PHILIPPINES The Philippines has also taken on a new

significance for retailers, brought about by propitious economic policies and favorable demographics. Notably, consumption accounts for over 70% of the country’s GDP, thanks to rising jobs, incomes and steady overseas remittances. The country also boasts a relatively young, skilled and English-speaking population which has been a huge draw for offshore business services. Reputed brands such as M&S, Guess, Uniqlo, H&M, Esprit, Aeropostale, Charles and Keith and American Eagle etc. have already established operations in Manila, the nation’s capital, and are considering expansion within the country keeping in mind a continued strong growth in BPO, tourism and service industries in tier II cities such as Cebu and Davao. As solid economic prospects spur urbanization and rising incomes, and considering further the size of its young population, domestic and international retailers stand to find abundant opportunities throughout the country. The market is dominated by a few major developers including SM Prime, Ayala and Robinsons which, in turn, means retailers have a small number of very important relationships to manage in the country.

MALAYSIA The country is not new to branded retail growth and its capital, Kuala Lumpur, is consistently ranked as one of the best shopping cities in the Asia Pacific region. Both luxury retail and fast fashion segments have a well established presence in the city. A strong and young consumer base with an average of 4-5% annual rise in disposable incomes continues to support branded retail growth in the city. Michael Kors, Uniqlo, and Tangs have increased their footprint in the city recently. H&M, RadioShack, Billabong, Longchamp and Lonely Planet are some of the new entrants in the last 12 months. Retail tourism and a positive long-term economic outlook will continue to buoy the retail sector in the city.

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CONCLUSION

The retail growth story in Asia, especially in emerging markets, is real and likely to continue over the longer term. Though near-term growth has shifted to a lower gear, long-term prospects remain intact given solid economic growth and relatively favorable demographics, especially in growth markets in South and Southeast Asia. However, continued high growth alone may not be sufficient to boost consumption; policy reforms and significant infrastructure investments are needed for balanced and inclusive growth. The challenge is for retailers to take advantage of this multitude of opportunities in these diverse retail environments, while adapting to complexities that are unique to Asian markets.

For more information about C&W Retail Tenant Representation, please contact:

James Hawkey

Managing Director

Retail Services, Asia Pacific

+852 2956 7820

[email protected]

James Assersohn

Director

Cross Border Retail, Asia Pacific

+86 21 2320 0738

[email protected]

Theo Knipfing

Director

Retail Tenant Representation, Asia Pacific+86 21 2320 [email protected]

For more information about C&W Research, please contact:

Sigrid Zialcita Managing Director

Research Services, Asia Pacific

+65 6232 0875

[email protected]

Lai Wyai Kay

Senior Manager

Research Services, Asia Pacific+65 6232 0864

[email protected]

Cushman & Wakefield (C&W) is known the world-over as an industry knowledge leader. Through the delivery of timely, accurate, high-quality research reports on the leading trends, markets around the world and business issues of the day, we aim to assist our clients in making property decisions that meet their objectives and enhance their competitive position.

In addition to producing regular reports such as global rankings and local quarterly updates available on a regular basis, C&W also provides customized studies to meet specific information needs of owners, occupiers and investors.

Cushman & Wakefield is the world’s largest privately-held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position in the world’s major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and management assignments. Founded in 1917, it has approximately 250 offices in 60 countries, employing more than 16,000 professionals. It offers a complete range of services for all property types, including leasing, sales and acquisitions, equity, debt and structured finance, corporate finance and investment banking, corporate services, property management, facilities management, project management, consulting and appraisal. The firm has nearly $4 billion in assets under management globally. A recognized leader in local and global real estate research, the firm publishes its market information and studies online at www.cushmanwakefield.com/knowledge.

This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not guarantee that the information is accurate or complete. Published by Corporate Communications.

©2012 Cushman & Wakefield Inc. All rights reserved.

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UNCOVERING OPPORTUNITIES IN ASIA’S SHIFTING RETAIL … · 2019-07-03 · Cushman & Wakeield is...

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