Mid-Tier Retail Brands to Drive Leasing Demand in Hong Kong; Tokyo, Beijing and Shanghai Lead Retail Rental Growth; In APAC Retailers Focus on Prime Locations
Increasing competition and rising operational costs will see retailers focus on leasing prime space in key growth markets in 2015. Hong Kong will continue to be a focal city in Asia targeted by retailers looking for expansion.
New retail supply in Asia Pacific is projected to reach 89 million sq. ft. in 2015, a significant jump from the 53 million sq. ft. in 2014. However, much of this new supply will be in decentralized locations. A lack of high quality stock in prime locations—in cities such as Tokyo, Beijing and Shanghai—will lead to rental growth.
Key themes in Hong Kong and APAC Retail market for 2015:
Driven by the growing number of arrivals from mainland Chinese visitors, retail sales growth is expected to increase across the region, particularly in Tokyo, Seoul and Taipei. Hong Kong will see a rebound with an increase of 8.4% expected in sales growth in 2015 from the negative 0.1% in 2014. China and New Zealand markets are slowing.
Despite retail sales volume growth, leasing sentiment will be dampened due to high operational costs, increasing competition and retailers’ more cautious attitude. Activity level in Asia is likely to stay flat but the Pacific will be more upbeat, as both Australia and New Zealand will continue to attract new entrants from overseas.
Hong Kong’s driving retail force will come from mid-tier brands in 2015. High margin luxury brands such as watch and jewelry retailers will also be demanding street shops in prime locations although luxury goods sales are expected to decrease.
Across APAC, leasing demand will be driven by mass market F&B and fashion retailers. Leveraging on the huge pipeline of new supply in suburban areas, mass market fashion brands will continue to expand in China’s tier III and tier IV cities, whilst fast fashion retailers will target Taiwan, Australia, and Southeast Asia. Luxury brands will focus more on consolidation and reviewing their portfolio strategy—expansionary demand will be limited, but focused on developed markets, particularly in Japan and within Australia where luxury brands have a strong focus for growth.
Hong Kong has reached a turning point. Rents are expected to experience a drop of up to 5.0% as retailers become more cost conscious. Growth in rents in the APAC region will continue in 2015 but at a slower pace—rental growth is projected to ease to 2.4%, compared to 5.4% in 2014. With rents growing by 10%, Tokyo will be top performer in APAC, with Taipei, Sydney and Melbourne seeing modest growth. Prime rental growth in China will be less than 5% in 2015, with key retail markets divided—growth will being driven by Beijing and Shanghai but dragged by Shenzhen and Guangzhou.
Vacancy pressures in suburban areas will continue to intensify, especially in mainland China as many of shopping centers are built by inexperienced developers. Singapore will also experience supply pressure.
Prime retail prices will diverge in 2015 with Greater China experiencing the biggest downward pressure on price growth. The retail capital value growth in APAC will slow notably, dropping from 6.5% in 2014 to 1.6% in 2015.
“The market will become more challenging for landlords in 2015 as they will have to deal with more budget conscious retailers entering into lengthier negotiation processes. Occupiers, meanwhile, will benefit from being more patient and taking time to formulate a proper strategy. The release of some space in core areas by luxury retailers due to consolidation will bring some new supply to the market. With the gradual reduction of luxury consumption by consumers, retail receipts is likely to be affected and therefore overall rents will experience downward pressure.”
*This CBRE Market Flash is a preview of information from our forthcoming 2015 APAC Real Estate Markets Outlook report*
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
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