According to CBRE's latest research, overall retail leasing activity in Asia Pacific in Q2, 2015 remained static, with the exception of Tokyo, where activity was robust. Strong rental growth in this market drove overall regional rental growth of 0.6% quarter-on-quarter. However, excluding Tokyo, overall rents dropped 0.5% quarter-on-quarter.
Dr. Henry Chin, Head of Research for CBRE Asia Pacific commented, "This quarter, the retail sector in Asia Pacific recorded slower rental growth as retailers showed caution around expanding in this region. Despite the positive performance of markets in Japan and Australia, overall rental growth is restrained by weaker demand in Greater China, especially in Hong Kong and Shanghai, as consumption demand in these markets was sluggish. Lately, the tourism industry has been influencing the retail market--Hong Kong is impacted by the change in tourist consumption patterns whilst the recent MERS outbreak has hit the South Korean tourism sector hard affecting markets such as Seoul. Tourism, plus the overall business sentiment, has had a large impact on the retail sector, which is reflected by weaker consumer demand. On the other hand, in Japan, core shopping districts have seen sales benefit from the influx of mainland China shoppers.
In Q2 2015, retailers are taking a more cautious approach, focusing on cost control and operational efficiency; they will look into due diligence, benchmarking and strategic network planning. Landlords are beginning to differentiate their offerings to meet consumer demand, for example in Japan, we have seen several luxury jewelers open in store cafés or VIP lounges. In light of the strong consumption demand, both from locals and Chinese tourists, retailers continue to look for expansionary space to provide better shopping experience.
Asia Pacific will continue to see retailers enter the region--along with demand for new space--as landlords look to introduce new brands to attract shoppers. Asia Pacific remains an attractive region for international retailers looking to move away from their home markets due to factors such as the region's expanding middle class, demographics and urbanization. The retail sector looks positive for tenants as landlords are more open to negotiate lower rates--tenants now have more bargaining power, but this is also translating to less urgency about signing contracts for new space and longer lease negotiations."
Other key APAC Retail highlights:
Besides Tokyo, other markets which showed positive retail activity include Manila, Auckland and Sydney where new overseas brands are continuing to enter the market. In the Pacific markets especially, demand is confined to prime core locations in the CBDs, however, availability of such space is limited.
Meanwhile, demand is softening in Greater China--in Hong Kong, rents continued to fall whilst the marginal dip in Shanghai signaled that this market has peaked
F&B retailers continue to lead leasing demand, particularly in India and Greater China. 'Athleisure' brands--a combination of fashion and sports--and skincare/cosmetics also displayed steady activity. The lack of activity by traditional luxury retailers is creating room for affordable luxury brands to expand.
Retailers continue to be risk-averse, focusing on relatively smaller scale expansion. Groups entering new markets are increasingly looking to do so via franchises.