January 2015

Retail Cities Asia Pacific

The Dynamic Food and Beverage Scene

Bangkok

Note: Auckland Retail refers to shopping centres, new market.Source: JLL Research, 3Q15

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ROBUST RETAILER DEMAND AND STRONG CONSUMERSENTIMENT• Improving consumer demand and increased inbound tourismhave boosted retailer confidence. Retail sales in the Aucklandregion continue to trend upward with 5.9% y-o-y growth in June2015. Demand for prime retail space remains strong as seenwith the recent arrival of several international fashion brandsincluding Prada, Dior and Topman/Topshop who have securedspace along Queen Street.

PRIME CBD RENTS CONTINUE TO SHOW AN UPWARDTREND• Prime rents continue to rise at a steady pace. Rents for Primequality space in the CBD increased 9.9% y-o-y to NZD 2,225 psmper annum, the result of increasing demand for quality centralspace from premium retailers.

SMALL INCREASES TO A TIGHT STOCK BASE• The retail stock base in the CBD expanded over the first half of2015, driven mainly by the release of some newly refurbishedsupply. No new developments have come on-line in 2015, whichis typical for the CBD due to limited available space.

OUTLOOK: EYES ARE ON THE PRIME• Retail is set to show strong growth in the next few years, withparticular momentum in the prime sector. International brandscontinue to express a strong interest in opening new stores,with both H&M and Zara set to enter the market in 2016.

Note: Bangkok Retail refers to shopping centres, Central Bangkok.Source: JLL Research, 3Q15

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MALL RENOVATIONS IMPROVE COMPETITIVENESS• Demand for prime retail space remained strong, and onlya handful of shopping centres performed poorly in 2Q15.International brands continued to show a strong interest inopening new stores, with 41 high-profile retailers openingat EmQuartier, and six brand retailers opening at the newlyrenovated The Emporium.

RENTS RISE AMID STRONG INTERNATIONAL LEASINGDEMAND• As international retailers expanded their presence in Bangkokand domestic demand remained robust, average prime rentsincreased by 1.7% q-o-q, to THB 2,418 per sqm per month.Capital values rose slightly less than rents, at 1.6% q-o-q,causing market yields to expand marginally.

SIAM DISCOVERY CLOSES FOR RENOVATION• Siam Discovery closed for renovation, resulting in thetemporary withdrawal of 26,500 sqm of leaseable space. Thepre-commitment rate at recently opened centres was high, butthe prime vacancy rate increased to 6.3% due to the ongoingrenovation of Central Plaza Pinklao and a handful of poorperformingmalls.

OUTLOOK: PRIME NEW SUPPLY WITH HIGH PRECOMMITMENTS• Three prime projects, Central Plaza Westgate, Central FestivalEast Ville and Zpell, plus three centres under refurbishmentshould be completed by 1Q16, adding 305,000 sqm of retailspace. Vacancy rates may fluctuate, but strong leasing activityplus high pre-commitment rates in the new and refurbishedmalls should push rents and capital values higher. Market yieldsshould remain fairly stable.

Note:Beijing Retail refers to shopping centres, Wangfujing Road.Source: JLL Research, 3Q15

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MID-MARKET FASHION AND F&B DRIVE DEMAND• Net absorption turned negative as new and centrally locatedmalls struggled for tenants. Recent completions in primelocations also experienced slow leasing. Mid-market fashion,F&B and the kids’ sector drove demand. Cath Kidston openedat Taikoo Li South, and Macy’s department store launched adiscount project. Casual dining remained popular, with severalsmall brands expanding.

RENTAL GROWTH SLOWS SIGNIFICANTLY• Rental declines at underperforming malls offset rental gains atstrong properties, meaning Urban rents grew by just 0.3% q-o-q.Core rents fared slightly better, at 0.7% q-o-q. No en bloc dealswere confirmed, although rumours persist about the potentialsale of a mall in decentralised Beijing to a domestic investor.

SUPPLY BOOM INCLUDES THREE LARGE SUBURBANMALLS• Fun Mix opened with an 80% occupancy rate and BadalingPremier Outlet launched with a 70% occupancy rate. Thevast Chengxiang Century Plaza department store also openedin South Beijing. Under pressure from weak projects, urbanvacancy rose slightly to 8.1%, while core vacancy growth wasflat.

OUTLOOK: SLOWER RENTAL INCREASES PLUS GROWTH INSUBURBAN SUPPLY• Softening retail sales, fierce competition and new supply shouldrestrict rental growth. Landlords at the top malls may still raiserents, widening the divide between strong and weak properties.More than half a million sqm of retail stock is still slated for 2015,with nearly half being in the suburban market. Indeed, plannedSuburban malls will outnumber new Urban and Core centresover the next four years.

Note: Delhi Retail refers to shopping centres, Prime SouthSource: JLL Research, 3Q15

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RETAILER EXITS AND STORE CLOSURES OVERSHADOWLEASING ACTIVITY• Global and domestic retailers are waiting for space in premiummalls, which is restricting leasing activity. Prime South, whereGap recently debuted in India, remains the submarket of choicefor big brands and it enjoyed positive net absorption in 2Q15.Prime Others and Suburbs saw more retailer exits and storeclosures.

RENTS AND CAPITAL VALUES RISE MARGINALLY• Strong performing malls in Prime Others recorded an increasein rents after three quarters of holding stable, but retailerscontinued to enjoy the upper hand in negotiations. A lack ofquality assets for sale continues to restrict investment activity.

NO NEW COMPLETIONS• Except for select under-construction projects, most shoppingcentre developments are struggling with weak retailer interestand construction delays. Vacancy rose slightly to 24.5%, q-o-q,with Prime Others recording the highest increase.

OUTLOOK: HIGH-QUALITY SUPPLY WITH HEALTHY PRECOMMITMENTS• High-quality upcoming projects count healthy pre-commitmentsand should improve absorption volumes. Increased expansionactivity by hypermarkets, multiplexes, F&B outlets and globalretailers is projected, but bricks-and-mortar retailers mustconsider strengthening competition from online retailers whenplanning growth strategies.

Note: Guangzhou Retail refers to shopping centres, Tianhe CBDSource: JLL Research, 3Q15

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MODEST RISE IN LEASING DEMAND• Leasing demand picked up, with overall net absorption almostdouble the 1Q15 level. F&B and fast fashion retailers drovedemand, and mid-range Chinese restaurants featuring themedelements also expanded relatively fast. Luxury retailers remaincautious about expansion, but international mass marketretailers were active, with Muji, Decathlon and Juicy Coutureeach committing to a new store in the city.

RENTS IN EMERGING PRECINCTS TREND UP BUT CAPITALVALUES REMAIN STABLE• Overall rents edged up by 0.5% q-o-q, to RMB 363.9 per sqm per month. Improved retail sentiment influenced a rental increasein emerging areas, but vacancy pressures and/or poor salessoftened the stance of landlords in core locations. Capitalvalues remained stable and no en bloc sales transactions wererecorded.

OVERALL VACANCY DIPS TO AN HISTORIC LOW• Guangzhou did not welcome any new retails space, and totalprime shopping centre stock remained at 1.2 million sqm. Adearth of new supply and slight improvement in leasing demandpushed overall vacancy down to an historic low of 2.3%.

OUTLOOK: DEMAND LIKELY TO RISE AMID A SUPPLY BOOM• Cautious retailers will focus new store openings on betterquality malls. A high projected volume of new supply shouldrelease some pent-up demand, and malls scheduled forcompletion in 2H15 are recording healthy pre-commitment rates.Supply pressures will limit rental growth. Investment sentimentis expected to remain stable, with buyers displaying continuedcaution.

Note: Hong Kong Retail refers to shopping centres, CentralSource: JLL Research, 3Q15

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RETAIL SALES IMPACTED BY SLOWDOWN IN INBOUNDTOURISM• Visitor arrivals growth slowed significantly, affected by protestsagainst Mainland shoppers and measures to curb paralleltrading. Coupled with the changing shopping habits of Chinesevisitors, retail sales fell by 0.4% y-o-y. Declining profitabilitymoderated demand for space from luxury retailers, and bigticketitem retailers scaling back their footprints compelledlandlords to lower rents.

DETERIORATING MARKET CONDITIONS WEIGH ON RENTS• High street rents slid 4.9% q-o-q as retailers preferred shoppingcentre locations, which offer more favourable rental andmarketing packages. Prime shopping centre rents edged up by0.3% q-o-q. With street shop rents falling and investors reluctantto chase yields lower, vendors lowered their capital valueexpectations.

SHORT-TERM SUPPLY REMAINS LIMITED• Phase one of Harbour North, Sun Hung Kai’s (SKP) retail projectin North Point, will be completed in 2017, with the larger phasetwo slated for 2018. SKP’s three shopping centres in Yuen Longwill be rebranded as the Yoho Mall. Yoho Midtown and Sun YuenLong Centre are expected to open in 3Q15, with Grand Yohoslated for 2016.

OUTLOOK: HIGH STREET RENTAL CORRECTION TO GATHERMOMENTUM• China’s anti-corruption campaign and the changing shoppingprofile of Chinese visitors are weighing on the retail sector.We forecast a 20-25% reduction in high street rents in 2015,although prime shopping centre rents should hold firm asdemand outpaces supply. Robust local consumption is attractinginvestors to strong properties in growth areas, but investmentactivity will remain slow in core locations.

Note: Jakarta retail refers to shopping centres, CBDSource: JLL Research, 3Q15

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F&B AND FASHION RETAILERS SEEK EXPANSION SPACE• Most malls continued to experience low single-digit vacancy,with some claiming waiting lists. Net absorption remainednegative for the second consecutive quarter. Notable leasesincluded Hysteric Glamour at Lippo Mall Kemang, Shirokumaat Kota Kasablanka, Gandaria City and Grand Indonesia, andAntony Morat, Harman Kardon and Prada at Pacific Place.

RENTAL GROWTH DRIVEN BY EXCHANGE RATE INCREASES• Although rental leases are usually quoted in rupiah, landlordslink rents to fixed USD/IDR exchange rates. Rents in USD termsremained largely flat, but some landlords bumped up theirexchange rates so net effective rents in rupiah terms rose 2.5%q-o-q. En bloc asset sales have been non-existent in recentyears, but strong interest in the Jakarta retail market means asale is possible in the coming quarters.

LOW VACANCY INFLUENCED BY LACK OF NEW SUPPLY• A governmental construction moratorium has restricted supplygrowth in Jakarta’s CBD in recent years, enabling landlordsto keep vacancy rates at manageable levels. Vacancy rosemarginally, but remained in low single digits at 4.2%. The stopon stand-alone shopping mall development remains, and mostprime-retail landlords are unlikely to face near-term vacancypressures.

OUTLOOK: ONE NEW COMPLETION EXPECTED BY YEAREND• The St. Moritz phase two should open in 3Q15, boosting primeretail stock by around 80,000 sqm. Several tenants are fitting outnew stores, including Asics, Shaburi and Cole Haan in GrandIndonesia, while Paul and Karen Millen are expected to expandin Plaza Indonesia. Rents and capital values should edge upsteadily in the next 12 months.

Note: Melbourne retail refers to shopping centres, CBDSource: JLL Research, 3Q15

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LEASING DEMAND REMAINS MODERATE DESPITESPENDING REBOUND• Retail turnover in Victoria continued to grow at an above-trendpace, with spending increasing by 5.3% y-o-y in May 2015.Household goods and cafes, restaurants and take-away foodservices remained the key drivers of growth. The rebound inretail turnover is expected to gradually improve leasing demandin the short term.ROBUST COMPETITION FOR RETAIL ASSETS• Investment activity remains constrained by limited opportunities.Transaction volumes of just AUD 417 million were recorded in1H15, compared with AUD 2.1 billion in the 2014 calendar year.Competition for assets and a low cost of debt are driving yieldslower as investors seek to grow their portfolios.

OCCUPANCY RATES REMAIN RESILIENT• Primarily driven by a decrease in the CBD vacancy rate,the average vacancy rate remained stable, while all otherAustralian markets showed an increase in 1H15. Supply forMelbourne in 2015 is expected to be 33% higher y-o-y, but islikely to be below the long-term average. The pre-2017 supplypipeline is evenly split across the retail sub-sectors.

OUTLOOK: RETAILERS BUOYED BY RETAIL SPENDINGRECOVERY• Few assets available for sale means transaction activity is likelyto be lower in 2015 than 2014. Downward trending yields areforecast to continue and spreads between retail sub-sectorsmay narrow. Demand for retail space will be supply-led, withredevelopments creating options for new and expandingretailers. Prime centres should enjoy solid demand, butchallenges exist for secondary or non-core assets.

Note: Mumbai retail refers to shopping centres, Prime SouthSource: JLL Research, 3Q15

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DEMAND DRIVEN BY A DIVERSITY OF RETAILERS• Suburbs continued to witness the bulk of leasing transactions,owing to a growing affluent population and plentiful of space innewly opened malls. A diverse spread of retailers undertakingleases suggests demand is strengthening. Skipper Furnishings,Soie and Rostaa all entered the Suburbs submarket, targeting aburgeoning appetite for lifestyle products.

OVERALL RENTS RISE SLOWLY• Prime South and Suburbs witnessed a marginal rise in rents,driven by quality malls with limited available space. In theinvestment market, a newly completed strata-titled mall inthe Suburbs quoted prices in the range of INR 22,000-25,000 persq ft.

ONE NEW MALL OPENS IN THE SUBURBS• A single new shopping centre completed in the Suburbs,commencing operations with around 20% of space committed.Overall vacancy rose marginally to 21.0% at the end of 2Q15,largely attributable to increased vacancy in Suburban malls.

OUTLOOK: NEW MALLS WILL ADD HIGH-QUALITY SUPPLY• Peripheral metropolitan locations are attracting retailers anddevelopers due to improving residential catchment profiles andnew supply. Rents and capital values are likely to appreciate inhigh-quality malls, while prominent high streets should continueto garner plenty of retailer interest.

Note: Seoul retail refers to High Street, MyeondongSource: JLL Research, 3Q15

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CONSUMER SPENDING REBOUNDS FROM MERSOUTBREAK• Retail spending has been boosted by a strong rebound in localconsumer confidence and inbound tourist arrivals following thede facto end to the Middle East Respiratory Syndrome (MERS)outbreak in July.• Occupier demand is being led by local retailers competingaggressively to launch flagship health & beauty stores and todiversify their F&B offering. Notable new openings includedHealing on the Mediheal, Bottega Verde, E.land Nature Kitchenand CJ Season’s Table.

PRIME ASSETS TIGHTLY HELD• There has been strong interest in the retail acquisitions fromboth investors and owner-occupiers however deal volume hasbeen restricted by a lack of available stock.

LUXURY LEADS THE WAY• Three new luxury brand flagship stores opened in Cheongdam,the most luxury streets in Korea. Burberry opened a multi-levelstore (GFA 3,974 sqm) in October, Dior commenced operationsfor a new store (GFA 3,195 sqm) in June and La Perla launchedtheir largest flagship store (NFA 462 sqm) in Asia.

OUTLOOK: LOW INTEREST RATES SHOULD SUPPORTRETAIL SALES• Driven by the rebound in international tourist arrivals and recordlow domestic interest rates, the outlook for the Seoul retailmarket is healthy. Major new brands expected to enter themarket include Flying Tiger Copenhagen. Local conglomeratesare also set to benefit from the expansion of duty-free storelicenses.

Note: Shanghai retail refers to shopping centres, West Nanjing RoadSource: JLL Research, 3Q15

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STRONG DEMAND FROM FAST FASHION AND KIDSBRANDS• Luxury retailers remained cautious about store openings,although successful price adjustments by Chanel and Gucciare influencing other brands to consider a similar strategy. Fastfashion and child-related retailers led leasing activity. Forever 21opened two stores and committed to a flagship on Huaihai Road,while Disney unveiled its global flagship in Lujiazui and Legolandwill open in Putuo.RENT LEVELS EDGE UP AS INVESTMENT ACTIVITYINCREASES• Core area ground floor rents increased by 1.9% q-o-q, to RMB52.3 per sqm per day, while non-core rents rose 1.1%, to RMB20.6 per sqm per day. Strong rental growth was observed in bothmarkets by successful malls undergoing tenant adjustment.Ivanhoe Cambridge and APG invested USD 920 million inChongbang, a developer renowned for its lifestyle malls inShanghai.

FOUR NEW PROJECTS OPEN IN CENTRAL AREAS• New World Daimaru Department Store, anchored by luxurybrands, and three mid-range malls – Crystal Galleria, Star LivePlaza and Xinlin Station – opened with a total GFA of 366,000sqm. Vacancy rose to 11.5% in the Core area, but decreasedto 7.5% in the non-core area, as several malls introducedentertainment and experience-oriented tenants on the upperfloors.

OUTLOOK: INTENSE COMPETITION EXPECTED IN NONCOREAREAS• Ongoing caution by luxury retailers will contrast with stableexpansion by fast fashion and F&B brands, while landlordsincreasingly covet child-related brands. More than 20 noncoreprojects are slated to open by end-2016, and malls withinexperienced landlords in saturated areas will have lowbargaining power. Rental growth will be bolstered by premiumbrands expanding to mature malls in key submarkets.

Note: Singapore retail refers to shopping centres, Orchard Road, District 9Source: JLL Research, 3Q15

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MATURE MALLS IN PRIME LOCATIONS AREOUTPERFORMING• Retail sales increased y-o-y in April and May and this hashelped with retailers’ confidence. Despite the challengingoperating environment due to a restrictive foreign labourpolicy and falling tourist arrivals, a substantial number of newstore openings occurred from a variety of retailer categories,including F&B, fashion and beauty.

CAPITAL VALUES SOFTEN AMID CAUTIOUS INVESTORSENTIMENT• Investment activity was tepid due to the lack of new strata retailsupply, softening capital values and weak economic growth.Overall mall rents corrected further, albeit at a slower rate.Despite strong occupier demand for established malls, smallshopping centres in non-prime locations witnessed weakerdemand and falling rents.

A LACK OF NEW COMPLETIONS KEEPS VACANCY TIGHT INPRIME LOCATIONS• New supply remained limited with only a few small shoppingcentre additions in the Primary and Suburban submarkets.Take-up was relatively slow, as retailers appear cautiousabout opening in new malls. Overall vacancy remained tight.Substantial space closed for renovations in Tiong Bahru Plaza,The Centrepoint, Holland Village Shopping Centre and CompassPoint. In secondary locations it is envisaged that vacancy rateswill rise.OUTLOOK: LIMITED SUPPLY LIKELY TO UNDERPIN STABLEOCCUPANCY LEVELS• Several new openings are slated in the next 12 months in theMarina and Suburban submarkets, but the lack of Core areaadditions may keep occupancy levels stable. Recent interestrate rises may affect consumer spending power while alsodiscouraging investments, and rents and capital values couldsoften in the near term.

Note: Sydney retail refers to shopping centres, CBDSource: JLL Research, 3Q15

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CORE AREA LEASING REMAINS STRONG• Demand for super-prime retail space remained strong. Two newleasing commitments, a Microsoft flagship store at WestfieldSydney and a Mimco store at MidCity, both offer Pitt Streetmall frontage. Meanwhile, COS leased space for its secondAustralian store at 5 Martin Place in the CBD.

INVESTMENT VOLUMES MORE THAN DOUBLE• Approximately AUD 515 million of retail assets were transactedin 2Q15 in New South Wales, up from AUD 253.7 million in 1Q15.The largest was the sale of Pacific Square for AUD 137 million.Yield compression was recorded sector-wide, notably in theNeighbourhood and Bulky Goods sub-sectors.

SUPPLY ADDITIONS PICK UP• In 1H15, 133,100 sqm of completions were recorded, comparedto 134,600 sqm in the 2014 calendar year. The AUD 475 millionredevelopment of Westfield Miranda completed with a 98% precommitment.Despite strong leasing demand, the CBD vacancyrate rose to 4.5%, up from 3.1% at the end of 2014.

OUTLOOK: INTERNATIONAL RETAILER EXPANSIONS TOCONTINUE• New mall completions are expected to peak in 2015, witharound 233,700 sqm of new supply anticipated by year-end.Low to moderate rental growth is forecast in Sub-regional andNeighbourhood centres, and further yield compression is likelyin the Regional, Sub-regional and Neighbourhood sub-sectorsover the next 12 months.

Note: Tokyo retail refers to High Streets, GinzaSource: JLL Research, 3Q15

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ROBUST RETAILER DEMAND AND STRONG CONSUMERSENTIMENT• Three consecutive quarters of consumption growth andcontinued demand from inbound visitors boosted retail sales.Department stores recorded strong duty-free goods sales,and luxury brands and F&B operators sought new stores inbetter locations. Notable new openings including Feiler’sGinza flagship, plus Stella McCartney, Sonia Rykiel and VersusVersace stores in Aoyama.

RENTS CONTINUE TO RISE AS VACANCY TIGHTENS• Rents averaged JPY 73,945 per tsubo per month, increasing 1.1%q-o-q, and 8.2% y-o-y. Despite firm rental growth observed inGinza, the pace of growth moderated compared to 1Q15. Capitalvalues increased 7.6% q-o-q, and 28.7% y-o-y, despite slowingrent growth as cap rates compressed amid growing investorinterest and limited availability of assets for sale.

THE SCARCITY OF AVAILABLE SPACE PERSISTS• The Japanese capital did not welcome any new supply to themarket. Vacant space continued to be very limited amid strongdemand and no new completions.

OUTLOOK: CAP RATE COMPRESSION MAY PUSH UPCAPITAL VALUES• Retail market conditions are expected to remain healthy givenpositive consumer sentiment and growth in visitor arrivals.Upward pressure on rents is expected because of a tightdemand and supply balance. Should low interest rates persist,cap rates may compress further and accelerate the growth ofcapital values.

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