Savills Research April, 2024: Asia Pacific Retail Spotlight

Head to Savills Research to read about the factors that are providing optimism for Asia Pacific’s retail markets for the long term, despite challenges in the immediate term.

In its April Asia Pacific Retail Spotlight, Savills examines the near and long term dynamics that are having an impact on the region’s retail real estate sector. Expected interest rate cuts and easing inflation are boosting positive sentiment. However, the absence of Chinese travellers is slowing overall recovery.

APAC Retail Outlook Remains Positive
The retail sector began a steady rebound in 2023. Since then, however, recovery has stalled in many markets. Locations that welcomed the fastest return of international visitors bounced back fastest. Rents in Hanoi, Osaka and Hong Kong climbed up to 5.7% in 2H/2023. Tokyo, Taipei and Shanghai remained flat. Despite the gradual improvement in the sector, retail markets are optimistic. APAC is home to the world’s most resilient economies. Wealth is rising and so is consumer spending. Additionally, inflation stabilised in 2023 and is coming down faster than expected. Interest rates are predicted to be reduced by mid-year. The result is increased purchasing power and a slower, but steady, growth rate.

Leasing Momentum Linked to Experiential Retailing
Leasing activity is trending up, but is based on specific demand criteria. Even with consumer spending gradually rising, what consumers spend on has shifted. Experience-forward retail and F&B is crucial. Casual dining and cafés are the fastest growing retail segment, followed by athleisure wear and cosmetics. Health and wellness brands that emerged during the pandemic continue to perform strongly. Elsewhere, beauty retailers are returning to high streets ahead of an expected tourism recovery.

Luxury retailers, previously the backbone of APAC retailing, are in a consolidation phase. Concept stores are on the rise, as are pop-up shops. Expansion is currently limited, and restricted to locations where a clear market gap exists. A comprehensive experience beyond shopping is now expected, and can include exhibitions, co-branded events and lifestyle offerings. Finally, non-traditional retail locations are gaining traction as well as younger consumers.

Retail Rents Creep Up in Step with Travel Recovery
In cities where tourism is recovering at a steady pace, market dynamics can increasingly favour landlords. Such is the case in Taipei, Singapore and Vietnam. However, market conditions still favour tenants in most major retail centres. The time is ripe for expansion.

Retail sectors are positioned to improve in the coming year. Shopping centre rents could rise as much as 5%, and a regional best 10% in Kuala Lumpur. Chinese cities are the outliers, and are expected to remain flat.

APAC will welcome 6 million sq m of new prime mall supply between now and 2025. Almost 80% of this in just four Chinese cities. Nonetheless, the region holds tremendous opportunity. Consumer numbers are set to balloon, and APAC will represent nine of the world’s 20 largest consumer markets by 2030.

Full Recovery Reliant on Chinese Travellers and Sentiment
International arrivals to APAC last year were just 65% of 2019 levels. This represented a recovery rate much slower than the rest of the world. However, within APAC, some markets are rebounding faster. India and Japan have already recovered 80% of their arrivals. Most other markets are now up to approximately 70%.

However, markets that rely heavily on mainland Chinese tourists will continue to wait. Hong Kong, South Korea and Taiwan lagged regionally in 2023. Limited and costly airlift, visa restrictions and a slowing domestic economy have kept Chinese travellers at home. There are indications 2024 will show improvement. Thailand, Malaysia and Singapore relaxed visa demands and spending by Chinese visitors surged 7.5% early in 2024. Structural challenges in China remain, which is prompting consumers to save rather than spend. Until Chinese consumer confidence improves, regional retail markets remain in recovery mode.

For complete details, read the April 2024 Asia Pacific Retail Spotlight at Savills Research: http://sav.li/8ww