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  • Asian retail outlook: “more cautious”

    Asian retail outlook: “more cautious”

    High operating costs – particularly rents and labor in Asia – will ensure retailers are more cautious this year, concludes real estate specialist CBRE.

    In its annual Asian retail outlook, the company’s research department predicts many retailers will shift their strategic focus from expanding their store networks to rationalisation, improving in-store profitability and upgrading to better locations.

    That trend is expected across the broad Asia-pacific market, including Hong Kong.

    “Leasing activity will diverge across markets, with Australia, Japan and New Zealand the most upbeat, whereas Hong Kong and Singapore will continue to struggle,” CBRE concluded.

    “Driven by ongoing urbanisation and wage increases, Southeast Asia will also see solid leasing activity. Demand across the region will be led by food and beverage retailers, while affordable and niche luxury brands will also be active.”

    CBRE also warns the rise of online shopping will continue to force shopping malls to embrace ‘retail-tainment’ and adjust their trade mix to include more experience-oriented retailers to retain foot traffic. Around 63.8 million sqft of new shopping center supply is scheduled to be completed in 2016. Against the sluggish leasing demand and ample new supply, overall retail rents are forecast to experience a mild correction of below 1 per cent in 2016.

    In a broader property outlook, CBRE forecasts that due to Asia Pacific’s steady economic growth – which will continue to outpace the rest of the world in 2016 – investment activity in the region will remain solid, although activity will be limited by asset pricing and availability.

    “The region’s investment market will continue to see strong demand from real estate funds and institutional investors. Institutional investors will continue to invest in Asia Pacific to increase their exposure to real estate for strategic diversification,” said Dr Henry Chin, head of research, CBRE Asia Pacific.

    “That said, Asia Pacific will enter a period of slower growth in the commercial real estate market with activity likely to moderate over the course of the year as it becomes more challenging to source investable stock able to meet investors’ target returns. Interest rates will remain low in 2016 so yields are largely to remain stable across Asia Pacific. However, we are expecting to see a mild yield expansion in 2017 together with the rise in interest rates.”

    The economic slowdown in China – as well as higher-than-expected US interest hike rates, and currency volatility – will also remain a key concern for investors, given the scale of its impact across the whole region.

    “However, macro trends of urbanisation and the rise of the middle class remain largely unchanged and will continue to drive growth across Asia.

    “There are structural investment-themed opportunities for investors to focus on in 2016, such as the growth of e-commerce, regional tourism and demographic changes. Demographic changes will create opportunities in niche sectors such as self-storage facilities, senior and student housing, and data centers,” said Chin.

    “Regionally, active markets will continue to be led by Australia and Japan, whilst India expects to see a positive year following the relaxation of FDI norms at the end of last year.

    “China will also remain on the radar for most international investors although demand will be largely confined to tier I cities. Overall, the long-term outlook remains positive for the region,” he concluded.

    CBRE’s 2016 APAC Real Estate Market Outlook report can be downloaded here.

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  • Grim outlook for Singapore retailers

    Grim outlook for Singapore retailers

    Singapore retailers are facing “dark days”, including store closures, according to Singapore real estate company CBRE.

    With falling domestic demand and soaring costs, there will be more store consolidations and closures, it says in a new report.

    It predicts the retail market to undergo further restructuring following a muted performance last year, with weak brands being elbowed out, reports the Singapore Business Review.

    “This year will be marked by challenging conditions that could push weaker-performing brands to close or downsize.”

    There will also become harder to hire staff, with the report warning it is “highly unlikely” the government will lift restrictions on hiring foreigners. However, the costs and time associated with innovation and revamp are likely to keep a lid on expansion plans.

    CBRE says the fast-fashion segment will be particularly hit hard by manpower constraints and lack of suitable retail space. It says cheaper running costs in neighbouring countries have helped pull fast-fashion retailers’ attention away from Singapore.

  • Asians to invest more in properties beyond the region

    Asians to invest more in properties beyond the region

    Real estate markets in Asia will likely remain less appealing than those in the US and Europe this year, with Asia plagued by anaemic economic growth and waning rents and capital values amid a supply deluge.

    In a recent interview with The Business Times, CBRE head of global research Nick Axford flagged that there will be greater outbound capital flow from the region this year by Asian real estate investors, who snapped up some US$39.7 billion (S$55.3 billion) of properties outside the region last year, a 26.8 per cent jump from 2014.

    He said: “If you look at parts of Europe and North America, there is strong economic growth, recovering demand, rising rents and not much developments. In many Asian markets like Singapore and Hong Kong, it is almost the opposite – strong pricing, but weakening economic growth and demand.

    “The balance of attractiveness has shifted towards Europe and North America.”

    Asian investors invested US$14.3 billion in real estate within the region last year, a 12.3 per cent rise from 2014, going by CBRE’s preliminary estimates covering office, retail, industrial, hotel and mixed-use projects; the figures exclude residential projects and development sites.

    Rising interest rates will generally fuel upward pressures on capitalisation rates – the ratio of a property’s net operating income to its market value. With the spread between interest rates and property yields near historical highs in many markets in Europe, Dr Axford noted that it is possible that rising interest rates will be “absorbed” in the normalisation of spreads.

    Sovereign wealth funds (SWFs) in the region such as Singapore’s GIC have trained their eyes on Europe and North America as they re-balance their portfolios. CBRE estimates that some US$8.1 billion was invested outside the region by Singapore-based investors, compared to the US$6.6 billion they ploughed into properties within the region.

    Based on preliminary data from real estate data and analytics firm Real Capital Analytics (RCA) as at Jan 12, Singapore-based investors purchased a record US$26.3 billion in overseas real estate in 2015, up 49 per cent from US$17.6 billion in 2014.

    These outbound Singaporean investments were driven by big-ticket purchases by heavyweights such as GIC and Global Logistic Properties (GLP), Temasek Holdings, Mapletree, ARA Asset Management Group and Ascendas Real Estate Investment Trust.

    RCA’s database covers transactions above US$10 million in asset classes such as development sites, office, industrial, retail, apartment, hotel and serviced apartments.

    Dr Axford said that while rental declines are seen across all property segments in Singapore, investors can make opportunistic buys with a time horizon of five to 10 years.

    In Hong Kong, the retail and logistics segments have softened; the office sector is holding up. Last year, Hong Kong Central Business District office rents rose 14 per cent, with prime office rents hovering at levels more than double those in Singapore.

    Dr Axford said: “There is still demand from the Chinese in good-quality office space in central Hong Kong. We are expecting rental growth of 5 to 10 per cent for Hong Kong office this year.”

    He views the recent volatility in the Chinese stock markets as an over-reaction to negative news from China – even though there has been no significant change to its economic outlook over the past six months.

    But with the probability of further weakening of the renminbi against the greenback, there will be sustained interest from Chinese investors wanting to put their capital to work outside China, in European and North American real estate, he added.

    Capital outflow from China was evident last year. CBRE’s estimates indicate that real-estate investments outside Asia by Chinese investors jumped 35.9 per cent to US$13.1 billion, against a 7.5 per cent drop to US$9 billion which they sank into domestic real estate.

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  • Chinese demand to drive growth in Australian luxury

    Chinese demand to drive growth in Australian luxury

    A surge in demand for luxury goods has seen Chinese-led spending overwhelmingly turn to international markets including Australia, according to the latest research from property group CBRE.

    According to the latest report, Luxury Retail 2015, 70 per cent of all Chinese-led luxury purchases are now transacted overseas, resulting in increased sales across the world, including Australian markets.

    “Chinese purchasers account for 30 per cent of the luxury spend worldwide and 70 per cent of these purchases take place overseas, showing that the downward shift in their economy has prompted Asian consumers to rethink their purchasing habits,” said CBRE head of research and consulting EMEA, Andrew Phipps.

    “The advent of the new ‘anti-extravagance legislation’ in China and their consumers’ growing awareness of price differentials of up to 70 per cent has led to many preferring to make their purchases overseas, where the prices are far more attractive,” said Phipps.

    CBRE head of retail brokerage leasing, Australia, Leif Olson said international brands were looking to capitalise on the uptick in demand for luxury goods by securing a presence in Australia’s biggest fashion hubs.

    “In 2015, the Australian retail landscape has transformed significantly, with a plethora of global brands lining up to open stores across the country,” said Olson. “This momentum shows no sign of slowing down, with affordable luxury brands to lead the charge in Australia over the next year, while top tier brands will look at securing flagship assets in core locations.”

    Olson said the next wave of growth in Australia’s luxury retail market would be centred on the expansion of retailers in Brisbane, Perth and Adelaide; the addition of food and beverage to luxury retail; and growth of premium childrenswear.

    “The addition of food and beverage to luxury retail stores is an untapped market in Australia, and a widespread concept already seen in the world’s largest fashion meccas, including Hong Kong and Macau,” said Olson.

    “Not everyone is in a position to splash out on a luxury branded handbag or wallet, but being able to have a coffee or meal at Armani, for example, broadens the brand’s appeal and makes it more accessible for everyone.“

    Luxury childrenswear represents another opportunity for growth in Australia says Olson.

    “Shifting the appeal of a brand from adults to families will be a major focus of retailers expanding in Australia, with this helping them to engage and reinforce relationships with their key clients – the parents – while building their future consumer base from the next generation.”

  • Bangkok retail rents hold firm despite competition

    Bangkok retail rents hold firm despite competition

    Bangkok’s retail market is now “the most competitive it has ever been” – yet there is another 1.1 million sqm of retail space under construction.

    When complete, by the end of 2017, that will bring the total completed supply of mall space in the Thai capital to nearly 8 million sqm – all in a market currently characterised by weak consumer sentiment and slow retail sales growth.

    But despite the intense competition, a leading property expert says Bangkok retail rents – in malls, anyway – are holding firm.

    In a column (which you can read in full here) written for the Bangkok Post Spectrum magazine CBRE Thailand MD Aliwassa Pathnadabutr, says the proliferation of new brands setting up shop in Bangkok, and the expansion of existing branded chains is fuelling unprecedented competition in the city.

    “In the upcoming festive season, we expect to see major retail developers competing with heavy promotions and retail events in a bid draw consumers and capture their holiday spending,” Pathnadabutr asserted.

    “The expansion by retail developers in the CBD and suburban areas, entry of new local and international retailers, combined with a challenging economic outlook and weak consumer sentiment is all adding up to the mix.”

    Pathnadabutr says the recent openings of EmQuartier and Central Embassy have intensified competition for existing CBD malls like the high-end Gaysorn, and the giant CentralWorld and Paragon centres.

    “As the major retail centres are chasing after the same group of consumers, retail events and promotions have become ubiquitous leading to a cut-throat competition and heightened promotion campaigns, particularly gearing up to the festive season where consumer spending typically peaks.”

    Expansion and development of suburban centres – like the Future Park Rangsit expansion which marked its soft opening in the last fortnight – may draw customers away from the CBD malls, although Pathnadabutr expects their impact to be limited and growing tourist base will keep the numbers up in the larger centres.

    Despite the competition, retail rents have held their own in Bangkok, according to Pathnadabutr.

    “It is often difficult to measure retail rents as there is a big range even within a single development. Prime retail rents in Grade-A downtown shopping centres range from THB1800 to 4500 (US$50 – $125) per sqm per month for ground floor spaces and THB1200 to 2380 (US$33 – $66) per sqm per month for suburban malls.

    “This level has been maintained throughout 2015 despite the growing competition.”

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  • Retail landlords headed for another horrible year in 2016, says CBRE

    Retail landlords headed for another horrible year in 2016, says CBRE

    Retailing landlords will likely continue to feel the pinch in coming times, as the ongoing slump in tourism is poised to weigh negatively on capital values in prime shopping districts, thumping prices a further 20 per cent next year, on top of an expected 20 per cent drop this year, according to CBRE.

    But CBRE predicts the office market will be a bright spot next year as the potential launch of Shenzhen-Hong Kong Stock Connect will drive up demand from mainland firms.

    “Retail rents will continue to trend down as leases expire, but given a lower base of comparison, the pace of decline is expected to decelerate,” according to CBRE’s Hong Kong Commercial Real Estate Review & 2016 Preview.

    It predicts that rents will track the decline in capital values, tumbling as much as 35 per cent this and next.

    “Sales momentum of upmarket goods will remain slow but mass market sales should continue to have more resistance,” CBRE said.

    Symptomatic of the woes facing the luxury retail sector, on Friday high-end brands Prada, Miu Miu and Gucci unexpectedly offered up to 50 per cent discounts as a way to drum up sales and attract long queues of shoppers, including those from the mainland.

    In a stark contrast to the depressed retail market, CBRE expects overall office rents to increase 10 per cent for 2015, and a further 10 per cent next year.

    “Next year will be another year of landlords’ market but the rental cycle is approaching the peak,” CBRE said.

    In 2016 office rents in Central would register the largest year on year growth, climbing 10 per cent, after rising an estimated 15 per cent this year.

    The sector would also benefit from the limited supply with just 1.4 million square feet due for completion next year, it said.

    CBRE also expects the capital value of office real estate could rise as much as 10 per cent next year, after 5 per cent growth this year.

    Two noticeable office transactions in November offered an indication of the upwards momentum in the sector. Mainland developer Evergrande Real Estate agreed to buy the 26-storey Mass Mutual Tower in Wan Chai from Chinese Estates Holdings for a record-breaking HK$12.5 billion.

    On the same day, China Life, the mainland’s largest insurer, announced the purchase of an entire office tower with a two-storey retail block at One HarbourGate in Hung Hom for HK$5.85 billion from Wheelock & Co.

  • Asian eCommerce boom reshaping logistics sector

    Asian eCommerce boom reshaping logistics sector

    The Asian eCommerce boom is driving major changes in logistics developments and networks across the region, according to CBRE’s latest Global & Emerging Logistics Hubs report.

    “With a trickle-down effect to inventory management, this is leading to changes in the global supply chain network,” said Dennis Yeo, regional head, industrial & logistics services with CBRE Asia.

    “Speed-to-market is more important than ever. The service demands brought about by eCommerce – for example, shorter delivery times to consumers – has changed the entire retail supply chain of getting goods to consumers, including regional distribution strategies. The technical ability of locations and buildings to support the ever-increasing demands for both scale and speed of output is an ever-more important determinant of market position.”

    In Asia, the eCommerce and e-tailing market has been particularly strong, with eCommerce upending the traditional bricks-and-mortar distribution networks, forcing retailers and third-party logistics firms to adapt to an increasingly demanding consumer.

    “eCommerce shipments are smaller in size and require more technology and expertise to execute efficiently. As a result, modern logistics facilities are being developed in the traditionally strong logistics hubs of Tokyo, Seoul and Taipei. Besides the developed markets, the new consumer class in the emerging markets is creating opportunities for logistics development in in China, India and Vietnam,” said Yeo.

    Hong Kong under threat

    Meanwhile, the report concludes that while Hong Kong will remain one of the top global logistics hubs in the world, for the next decade, the territory will be in strong competition with several emerging Asia hubs including China’s Beijing, Hangzhou, Nanjing, Suzhou, and South Korea’s Busan.

    “Hong Kong has maintained its global logistics hub status due to its efficient transportation network and highly developed logistic services. It ranks third in the World Bank’s Logistics Performance Index,” said Darren Benson, executive director, industrial & logistics, brokerage services, CBRE Asia.

    “As the traditional global gateway to China, Hong Kong is likely to remain the hub for global distributors, due to its local trade and transport regulations and its ease of connectivity via seaports.“

    Hong Kong is currently the fourth largest global seaport by container volume, while emerging hubs such as Shanghai, Shenzhen and Busan rank first, third and fifth respectively. These emerging locations share a number of characteristics, including significant investments in infrastructure, new trade policies and agreements, and more advanced supply chains and technologies. As these cities continue to improve their regional transportation infrastructure so their viability for international trade increases.

    The shift in global supply chain dynamics and creation of new logistics hubs in Asia may also be spurred by China’s plans to revive the Silk Road trade route.

    In 2013, China launched a new strategic initiative, known as “one belt, one road,” which aimed to revive the importance of the Silk Road. The new Silk Road has two parts: the Silk Road Economic Belt, a land-based route that will connect central China to the Middle East and Eastern Europe, and the Maritime Silk Road, a sea-based path that will link South China to Southeast Asia, East Africa and Europe.

    In Asia, low-end manufacturing – such as garment and textiles production and electronics component assembly – has steadily been moving from Southern China to Western China and Southeast Asia. Southern China, encompassing the Pearl River Delta, has traditionally been the light industrial manufacturing center of the world, however, as wages continue to rise and China attempts to move up the manufacturing value chain, there has been a shift to more sophisticated heavy industry manufacturing.

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  • Asia luxury retail revival ahead

    Asia luxury retail revival ahead

    While Asia Pacific may be experiencing a slowdown in luxury retailing right now, three key trends will fuel a renaissance in coming years.

    That’s the core finding of a research report by property specialist CBRE, The Future of Luxury Retail in Asia Pacific: New Demand Drivers and Shifting Occupier Requirements, which promises property owners can expect “a solid new stimulus for demand” in the coming years.

    Most major luxury retailers are now well established in Asia Pacific – their with China and Hong Kong penetrations already at 89 per cent and 81 per cent, respectively. And after several years of rapid expansion, these markets are approaching saturation point.

    “Accounting for one-third of personal luxury goods sales globally in 2014, Asia Pacific is a key region for international luxury brands with key markets including China, Hong Kong, Japan, Singapore, South Korea and Taiwan. However, the high growth period for luxury retailers in the region is gradually coming to an end,” commented Dr Henry Chin, head of research, CBRE Asia Pacific.

    ”Over-saturation, surging operational costs and weaker retail sales – especially in Hong Kong due to the slowing mainland China economy – have prompted retailers to consolidate their existing store networks and slow their rate of entry into new markets focusing on operational efficiency,” said Chin.

    But here is where there is hope: CBRE has identified three emerging trends which will partially offset some of the negative effects arising from the slowdown and compensate for the loss of demand.

    • The Emergence of Affordable Luxury

    Often referred to as bridge brands, affordable luxury retailers – for example Michael Kors – provide high quality branded goods at a lower price tag than top-tier luxury retailers. Several top-tier luxury brands are already so well established in the region that they are at risk of overexposure, a trend which is prompting many consumers to look for differentiation.

    • Inclusion of F&B

    Recent years have seen luxury brands begin to expand beyond their core fashion businesses into the F&B sector – examples include 1921 Gucci in Shanghai iAPM and Cafe Dior by Pierre Hermé on the top floor of Christian Dior’s flagship store in Seoul – transitioning their brand from being totally fashion-oriented to more lifestyle-driven. Including an F&B component in stores enables luxury retailers to provide their consumers with a more complete experience in which they can shop, relax and socialise.

    • Growth of Luxury Childrenswear

    As of 2014, Asia Pacific was home to 807 million people aged below 14, representing more than 20 per cent of the total population, offering an enormous opportunity for growth in this segment. The emergence of luxury childrenswear brands has been welcomed by landlords as many of them are looking to expand their offering into toys, bookstores and playrooms in order to attract and retain foot traffic amid competition from online retail.

    “With the momentum behind these trends, this will account for a bigger slice of leasing demand for prime retail space,” says Joel Stephen, senior director, head of retailer representation, CBRE Asia.

    “Retailers and landlords can benefit from the projected growth in these market segments.”

    Changes in Luxury Retailers’ Real Estate Requirements

    The emerging retail trends – combined with changing tourism patterns and the ongoing slowdown of the region’s luxury retail sector – are already impacting luxury retailers’ real estate requirements, resulting in new, and in some cases, weaker demand for different types of retail property.

    “The change in shopping behavior among mainland Chinese tourists – who are demonstrating a stronger preference for shopping in Europe and Japan – has prompted luxury brands to review their expansion and rationalise their real estate portfolios, strategies and requirements. Since most luxury retailers remain cautious towards expansion, especially in China, retailers are now focusing on consolidating their footprint into a solid network of stores in high quality locations, as opposed to expanding rapidly and opening many smaller stores, in order to extract the highest value from their sales network,” says Chin.

    Some of the key trends that CBRE have identified include:

    • Weaker interest in department stores despite continued interest in prime locations;
    • Stronger focus on flagship stores, displaying more product lines, thus making a stronger statement in the market;
    • Increased popularity in short-term opportunities for brands to set up exhibitions, pop-up and concept stores, and workshops, to generate greater consumer awareness;
    • Affordable luxury brands continuing to drive demand, encouraging more shopping center landlords to offer them anchor tenant space; and
    • More interest in upper floor retail space, but limited to top-tier malls and driven by F&B and childrenswear segments.

    Says Stephen: “Driven by the emergence of affluent consumers and the rise of the number of millionaires in the region, Asia Pacific will remain a hugely important market for international luxury brands with new names entering the region.

    “Even though leasing demand will slow to a more sustainable level, prime space in core areas will continue to be keenly sought after.”

    Penetration of luxury retailers into Asia-Pacific.

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  • Hong Kong retail rents weaken further

    Hong Kong retail rents weaken further

    Hong Kong retail rents weakened further in the third quarter – and worse is to come, according to CBRE’s quarterly review.

    Against a backdrop of a seven per cent fall in watch and jewellery sales in July and August combined, there was an increase in lease surrenders by luxury brands and high-value retailers on tier one streets, the review said.

    “Overall rents in core locations slumped 9.1 per cent quarter on quarter, the largest quarterly decline recorded since 1998.”

    Among the four core submarkets, rents in Causeway Bay fell the most severely – by 11 per cent quarter on quarter – taking the total year to date decline to 22 per cent.

    “Rents in Central, Tsim Sha Tsui and Mong Kok declined by 9.2 per cent, 7.0 per cent and 7.6 per cent quarter on quarter, respectively.

    “Mid-range retailers are attempting to regain their foothold in prime locations. Cosmetics retailers, sportswear brands and fitness centers were the most active sectors in Q3.”

    Joe Lin, executive director, retail services, CBRE Hong Kong​ said the top tier retail market led the deterioration.

    “The shift in mainland Chinese tourist spending patterns coupled with slower tourist arrivals continued to erode confidence among luxury retailers. This resulted in more cases of lease surrender and rental cuts for tier one street shops by jewellery and luxury retailers. We expect the rental downcycle to continue in Q4.”

    Lin predicts average rents for space in core retail locations will continue to decline in Q4, with the full year rental downward adjustment for 2015 projected at between 20 and 25 per cent.

    “Non-luxury retailers are set to be the main driver of retail leasing demand in Hong Kong.

    “Leasing transactions signed over the past two quarters at lower rents in tier one streets will set new benchmarks for lease negotiations in the coming months.”

  • Hong Kong retail ‘moves to the middle’

    Hong Kong retail ‘moves to the middle’

    Hong Kong retail is moving from its traditional luxury focus to the mid market and the demographics of shoppers change, according to a report from CBRE.

    Mid-market retail brands are set to overtake luxury brands  as the main driver of retail demand in the territory, according to the report, The Changing Retail Landscape: How to Survive the  Slowdown in Hong Kong?.

    The Hong Kong retail sector outperformed over the last decade with strong sales growth for high-end products. This generated an increase of 213 per cent in average rents from 2003 to 2014 for core street shops in Causeway Bay, Tsim Sha Tsui, Mong Kok and Central.

    “But the tailwind for luxury retailers has slowed since 2014 hindered by a range of factors including Chinese government’s anti-corruption measures, milder GDP growth in China, weakening Asian currencies and the loosening of policies on travel for mainland Chinese,.” says CBRE in a summary of the report.

    These are all unfavorable factors for Hong Kong’s tourism and retail sales. The total retail sales in Hong Kong from January to July 2015 edged down by 1.8 per cent year on year, while sales of watches and jewellery plunged 15 per cent in the first seven months of this year.

    “Despite the gloomy outlook  for the retail sector, opportunities are emerging for mid-market retailers.”

    “The retail sector is experiencing a structural change,” said Joe Lin, executive director, retail services, CBRE Hong Kong.

    “Over the past decade, high-street shop landlords have reaped the benefits of strong demand from luxury retailers and massive rental growth. Landlords must now be more realistic on rental negotiations, as luxury retailers are adjusting their leasing strategies to save costs, and more mid-range brands are looking to tap into prime locations at relatively affordable rental levels. This opens the door for mid-market brands to expand. In the last quarter, we saw prime street shops leased to mid-market brands following the lease expiry of the previous luxury goods retailers.”

    To cope with the slowdown, luxury retailers are consolidating their second-tier shops, which will increase space availability in the market. Some high-end fashion, cosmetics and watch and  jewellery retailers have either stopped renewing leases or surrendered spaces well ahead of  expiry. However, they will still strive to secure flagship premises in strategic locations with  prominent addresses and good visibility, which means a higher marketing value. They may also introduce secondary lines at accessible prices, targeting young consumers with a growing  demand for mid-market products.

    Consolidation by luxury retailers in Hong Kong implies that the tenant composition in some prominent retail locations will gradually change. Meanwhile, mid-range retailers previously not able to afford to lease a space in prime locations are now looking to take up vacant space  surrendered by luxury brands. Landlords are more willing to negotiate with tenants for more  affordable terms. While rents are generally falling, shops in the most strategic locations with  good footfall and visibility are not expected to run into high vacancy risks as long as landlords are prepared to be flexible in leasing terms.

    “The sales performance of luxury products is heavily reliant on the external factors mentioned,” said Marcos Chan, head of research, CBRE Hong Kong, Macau and Taiwan.

    “In contrast, the demand for mid-market goods from both tourists and local consumers is relatively steady.”

    CBRE foresees three trends in the next five years:

    • The main driver of demand for retail space are shifting from high-end consumer goods to mid-market brands;
    • Local demand will gradually regain a bigger share in total retail sales compared with tourist spending; and
    • Decentralised areas will provide a significant proportion of new retail space, offering more leasing options.

    “These trends suggest that retail market stakeholders, including  luxury and mid-market brands, and street shop and shopping mall landlords, will have to reconsider their business strategies,” said Chan.

    “Structural changes in the retail landscape will ultimately result in a more balanced and sustainable retail market in Hong Kong,” added Lin.

    “The tenant mix of both core areas and sub-markets will become more diverse, enabling both high-end and mid-market brands to offer a broader range of products to consumers. Domestic spending will get retailers’ attention and the mid-market sector will see healthy growth potential.

    “We would recommend mid-market retailers to continue to explore opportunities in emerging districts. This will ensure they obtain first-mover advantage. Meanwhile, street shop landlords should lower their rental expectations and consider leasing to mass-market brands to avoid long-term vacancy.”

    The lack of supply in the market is another reason for pushing retail rents to a high in past years. CBRE believes that supply in the next five years will ease some pressure on retailers on rental expense but new options in the core shopping districts will continue to remain limited.  The development of several new towns in more remote districts will result in substantial growth  in residential and working populations that will need to be served with by shopping facilities.

    CBRE estimates that in the next five years, 70 per cent of the new supply will be in non-core districts and 5.6 million sqft of retail space will be shopping arcades for residential estates.

    “This will provide opportunities for mid-range retailers to expand their store networks targeting the mid-to-high income households. Government statistics suggest that the catchment areas of these regional malls usually have an above-median household income.”

  • Generation Z to make big retail impact

    Generation Z to make big retail impact

    New challenges lie ahead for retailers in Asia as Generation Zers embrace technology and earn more.

    In its newly released report How We Like to Shop Online, CBRE says Generation Z is expected to have significant influence over the retail market in the coming years as their income levels are set to increase rapidly upon joining the job market.

    Generation Z refers to people born after the Millennial Generation, loosely defined as from around 2000.

    “Having spent most of their lives using the internet and other related technology, Generation Z’s demographic of consumers has distinct shopping behaviors in comparison to other demographic segments,” says Jonathan Hsu, head of occupier markets research, CBRE Asia Pacific.

    “Key aspects of their online shopping habits include stronger trust in online information; more activity on social media; and needing a sense of differentiation. These factors demonstrate the increasingly important role of technology in shaping the decision-making process of consumers,” said Hsu.

    In order to remain competitive in the digital age, retailers and landlords need to be proactive in reaching out and engaging with their consumers. Mobile shopping is most prevalent in emerging markets, and in many places, smartphones are the first – and sometimes only – point of internet access for many consumers, therefore, are playing a key role in driving the growth of online retail.

    Smartphone apps and social media can provide valuable information and insights into consumer behavior, for example, push notifications for smartphone apps or social media platforms based on consumers’ shopping history, location and preferences can help personalise their shopping experience.

    “Landlords and retailers need to be more digital-savvy, keeping pace with the latest trends in smartphone applications and social media so they can build a stronger relationship with consumers especially those from Generation Z,” said Joel Stephen, senior director, head of retailer representation, CBRE Asia.

    “These digital platforms are two essential mediums of online retailing, which should be integrated into retailers’ omni-channel strategies in order to capture Online-to-Offline (O2O) business opportunities.”

    With around 70 per cent of consumers in Asia Pacific collecting their online orders in-store – and 90 per cent of them purchasing additional items when picking up their online order – click-and- collect services are also an effective way to drive in-store sales, creating a synergy between both online and offline platforms.

    CBRE says landlords should thus collaborate with tenants to help merge their online and offline offering by providing the necessary facilities and regular renovations.

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  • Foreign brands drive Manila malls boom

    Foreign brands drive Manila malls boom

    Manila’s thriving retail sector will lead boost returns for shopping centre developers, says new research from real estate specialist CBRE.

    “With several new malls operational this quarter, supply of retail space has boosted,” concludes CBRE’s The Philippine Real Estate Industry Update and 2015 Outlook.

    “Retail sales remained solid, demonstrating upticks in consumer spending as evidenced by the low inflation rate and an encouraging outlook for real estate and tourism sectors.”

    Nationwide, the Philippines’ retail industry growth is being fuelled by both local and international brands expanding their footprints.

    “The quarter saw the entry and expansion of new and existing global brands in different retail core sites. These international brands have recognised the potential of the Philippine retail market, signified by the country’s strong economic growth.”

    Sweden’s H&M is a prime example: after a successful debut in Manila, the company has aggressively expanded its operations throughout Metro Manila with local major shopping mall operators. The first H&M outlet in Megamall occupies 3000 sqm over three floors and is now considered one of the largest retail stores in the Philippines.

    Estancia Mall in Capitol Commons, which houses several retail outlets and restaurants, opened in the fourth quarter in time for the holiday rush. The building, which has a gross floor area of over 30,000 sqm meters, also incorporates office space.

    Other Manila malls opening during the quarter were Robinson’s Place Las Piñas and City of Dreams Manila.

    “With the holiday season at hand, the retail sector remained active with more international retailers showing interest in entering the domestic market. Consumer sentiment was sustained as major drivers such as the BPO sector and overseas remittances show no signs of slowing down,” said CBRE.

    Diversifying into the retail segment, major developers are taking advantage of the ‘Retail- tainment’ concept wherein office and residential projects are including retail use.

    “The purpose of this is to provide the overall retail experience to Filipino shoppers, giving them the power of choice at their own convenience. This factor is also seen to attract foreign retail players to dive into the Philippine market scene.”

    These factors, says CBRE, will drive “upbeat” demand for, and supply of, retail space in Manila malls in the near future.

    “Overall, the Metro Manila retail market is seen to remain strong and stable for the remainder of the year empowered by the expanding Business Process Outsourcing industry, Overseas Foreign Worker remittances, growing tourism and a growing middle-income market.”