uncovering opportunities in asia's shifting retail landscape

8/13/2019 UNCOVERING OPPORTUNITIES IN ASIA'S SHIFTING RETAIL LANDSCAPE

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DECEMBER 2013

UNCOVERING

OPPORTUNITIES IN ASIAS

SHIFTING RETAIL LANDSCAPE

A Cushman & Wake eld Publication


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Cushman & Wake eld is the worlds largest privately held commercial real estate services rm. Founded in 1917, it has235 of ces in 60 countries and more than 13,000 employees. The rm represents a diverse customer base ranging fromsmall businesses to large multi-national rms. It offers a comprehensive range of services within ve primary disciplines:

Leasing, including tenant and landlord representation in of ce, industrial and retail real estate;

Capital Markets, including property sales and acquisitions, investment banking, and corporate and investor nance;

Corporate Occupier & Investor Services, including integrated real estate strategies for large corporationsand property owners;

Consulting Services, including business and real estate consulting; and

Valuation & Advisory, including appraisals, highest and best use analysis, dispute resolution and litigation support,along with specialized expertise in various industry sectors.

A recognized leader in global real estate research, the rm publishes a broad array of proprietary reports availableon its online Knowledge Center at: www.cushmanwakefeld.com/knowledge


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INTRODUCTION

The Asian retail real estate landscape is shifting.In sharp contrast to just ve years ago, manyretailers now believe that they cannot be viewedas global retailers without a strong presence inAsia. Discussions on strategy increasingly viewAsia as a key source of growth for the comingdecades, and also as a source of innovation andnew ideas. Retailers and developers alike are

now changing their offerings to address the moreexperienced and demanding retail consumers oftodays Asia.

CUSHMAN & WAKEFIELD 3

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CURRENT RETAILING TRENDS

Prime retail real estate in Asia Paci c continued to reach new levels based on solid economic drivers,strong tourism and long term policies that stimulate growth throughout the region. For the second year ina row, Hong Kong retained its position as the worlds most expensive city for retail rents 1 . Average rentsreached new records in its prime shopping districts, with shop rents in Causeway Bay the highest at US$3,017 per square foot per year. While growth noticeably slowed in the rst half of this year, retail rents onprime streets in Hong Kong jumped another 20% from 2012 and have more than doubled since 2009.Ginza and Omotesando in Tokyo, Pitt Street Mall in Sydney, and Myeongdong in Seoul also featured in thetop 20 rankings.

H1 2013 RETAIL RENTS BY CITY

0 500 1000 1500 2000 2500 3000 3500

Hong Kong

Tokyo

Sydney

Seoul

Beijing

Brisbane

Shanghai

Melbourne

Singapore

Kuala Lumpur

Perth

Adelaide

New Delhi

Taipei

Ho Chi Minh City

Hanoi

Mumbai

Gurgaon

Kolkata

Bangkok

Jakarta

Bengaluru

Pune

Chennai

Hyderabad

Manila

Ahmedabad

3,016.86

984.44

850.34

732.16

435.92

425.17

411.77

382.65

353.86

322.84

297.62

280.61

252.42

239.19

222.96

211.81

151.45

121.16

121.16

111.43

109.67

84.81

70.68

60.58

52.50

37.42

30.29

*In US$/sf/year

1Main Streets Across the World 2013-2014

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CHANGE IN TOTAL RETAIL SALES 2012 - 2013

1% 2%

2%

-2%

4%

6%

8%

10%

12%

3% 4% 5% 6% 7% 8% 9%

Hong Kong

China

VietnamIndia

Indonesia

Philippines

Malaysia

Singapore

Thailand

Taiwan

South Korea

Australia

Japan

Source: Euromonitor International, Roubini Global Economics

GDP GROWTH

% C H A N G E I N

T O T A L R E T A

I L S A L E S

STRONG TOURISM Sound economic fundamentals, combined with growth in air travel connectivityand affordable travel, have also been instrumental for stimulating tourism. Based on MasterCard GlobalDestination Cities Index report, major cities within the region have prominently placed among the top 10rankings. The importance of tourist arrivals to retail demand and rents is underscored by their high levels

of retail spending. Notably, tourist spending makes up as much as 30% of the total retail sales, especiallyamong these top travel destinations. In the case of Hong Kong, the biggest in uence on retailer demand ismainland China; nearly three out of every four tourists are from the mainland 3 .

3Based on 2012 data.

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ECONOMIC GROWTH ON TRACK,RETAIL OPPORTUNITIES IN SIGHT

The growth story for the Asian retail market is far from over. The impactof the increasing number of consumers in Korea and Japan approachingretirement will be offset by fast-growing emerging markets in the regionwhere more than 40% of the population belongs to the 25-54 age cohort.This new consumer class will be the biggest spenders as they set uphomes, raise families, and therefore pump a lot of money into the regionsretail market. Additionally, the region will continue to bene t frompositive reforms and supportive regulatory framework that should fostermore sustainable, balanced, and inclusive economic growth and in turn,fuel the rise of the middle class. Consequently, overall retail sales growthis expected to accelerate over the next four years in China, India,

Indonesia and the other emerging markets in the region, according toEuromonitor International.

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DEVELOPED MARKETS JAPAN Japan is Asias most developed economy with total retailsales ranking second after China at US$1.3 trillion in 2013. Japannow has a full range of major international brands, with recententrants including Hollister, Old Navy, American Eagle, TigerCopenhagen, Free People, Tommy Bahamas, and Charles & Keith.In addition, Japan has a range of home grown brands that speaksof its eclectic culture. Japanese brands are increasingly expandingthroughout Asia including Uniqlo, Muji, Nitori, Azul by Moussy,United Arrows, Point Inc. and more. Larger retail formats are alsoheading overseas with Mitsui Fudosan and AEON Groupdeveloping outlets and shopping centers, while department storeoperators including Takashimaya and Ito Yokado are also active inglobal markets. The top Japanese malls, Lazona Kawasaki Plaza,

AEON Laketown, and LaLaport Tokyo Bay have achieved annualsales of around US$ 720 million, US$ 670 million, and US$ 580million respectively in 2012.

AUSTRALIA A strong base of local retailers provides strongcompetition for international retailers entering the country.Nonetheless, as the fourth biggest market in Asia with retail salesprojected at US$ 233 billion in 2013, Australia is increasinglyattracting international names. Sydney and Melbourne have a fullrange of luxury retailers such as Prada, LV, Dior, Chanel, Bvlgari,Armani, and Tiffany. Luxury designer labels such as Marimekko andReebonz have entered the market recently and the Japanese fastfashion giant, Uniqlo is debuting with a agship store in Melbourne

next year. H&M are also opening shortly in Melbourne and Sydneywhile Zara and Topshop have opened a number of stores over thelast 24 months. Australia is home to some of the top performing

malls in Asia with Chadstone Mall (Melbourne) generating sales ofaround US$1.3 billion while West eld Bondi Junction (Sydney) hassales approaching US$1 billion.

HONG KONG While Hong Kong is a city market , accountingfor just over 3% of Chinas retail sales, it is still an exceptionallyimportant market. Hong Kong often exhibits the highest salesproductivity in Asia, and indeed for many brands, globally. HongKong is home to many of the best performing centers in Asia withHarbour City achieving US$4.0 billion in sales in 2012, which isabout 7% of total retail sales in the city, while Times Squareachieved US$1.2 billion. The city is very densely populated andalso bene ts from very strong tourist spending. Tourists

accounted for 33% of Hong Kong retail sales in 2012, with thebulk of this being visitors from mainland China. Hong Kong is alsoa key showcase for international brands who want to createawareness among the well to do mainlanders who travel.

Taxes on luxury goods are substantially lower in Hong Kong thanin mainland China, so it is these goods in particular that arepopular with mainland shoppers. As a result, luxury goods andwatch and jewelry retailers have expanded rapidly in recent yearsand continue to dominate the space in prime locations. While themarket is being affected by new trends - for example the risingattraction of long-haul destinations among af uent mainlanders,and Chinas recent clampdown on gift-giving jewellery and

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2013 ANNUAL DISPOSABLE INCOME PER CAPITA BY COUNTRY

DEVELOPED MARKETS

EMERGING MARKETS

: represents 100 millions of total population

Source: Euromonitor International

THAILAND

$3,580

PHILIPPINES

$2,045

DEVELOPED MARKETS

$44,276

MALAYSIA

$5,817

CHINA

$3,925

VIETNAM

$1,086

INDIA

$1,233

INDONESIA

$2,099

JAPAN

$30,954

HONG KONG

$29,144

SINGAPORE

$27,779

SOUTH KOREA

$13,083

watches was still the fastest growing retail category in August2013 with year on year growth of over 20%. This trend is makingit tough for some retailers to compete for properties in key retail

areas. In Canton Road for example, the majority of transactions in2013 have been with gold and jewellery retailers.

SOUTH KOREA With sales of US$ 187 billion in 2013, SouthKorea is the fth largest retail market in Asia Paci c. With the2008 nancial crisis continuing to affect development con dence,the supply of shopping centres and future development pipeline islimited, with the result that existing shopping centres are amongthe best performing in Asia. Growing tourist arrivals to thepeninsula, fueled in part by the interest in Korean pop culture, willcontinue to support the retail sector. International fast fashionbrands including Zara and H&M have been expanding in market,competing with home grown fashion brands such as 8 Seconds.

Korean retailers are increasing looking to expand in China and Japan with brands such as E-Land, Beanpole, Basic House and CJVcinemas very active internationally. The country is the secondlargest market globally for outdoor sports equipment. Seouls

retail scene has both main street s tores, such as Myeongdong, aswell as malls. Times Square, one of Seouls mega malls, had annualrevenues exceeding US$ 1 billion in 2012.

SINGAPORE The islands state per capita GDP has increasedby over 50% in the last ten years, driven by the governmentsefforts in the earlier part of the century to revamp the economyinto a high income nation. Tourism has surged on the opening ofthe Integrated Resorts and the country remains a shoppingdestination for the Southeast Asia region, with Indonesians andMalaysians forming a huge part of its tourist arrivals. The retailsector has undergone a renaissance in recent years and therepublic is now a vital stopover for the likes of H&M, Tory Burchand Abercrombie & Fitch to name just a few.

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EMERGING MARKETSCHINA China is now Asias largest retail economy with sales ofUS$1.7 trillion forecast for 2013. As such it has become theprimary target for many retailers entering Asia, and the market isnow among Asias most international. Retail growth in China hasremained vigorous while signs of moderation have surfaced as theeconomy undergoes a restructuring process. Tier 1 cities Beijing,Shanghai, Shenzhen and Guangzhou have the most wealthy andbrand-conscious consumers and now show retail sales growth of9% to 16%, while in major tier 2 cities, such as Chengdu, Wuhan,Nanjing, Shenyang and Chongqing, retail sales growth is higherranging from 13% to 17%. Overall, we expect a steady rise inincome levels to nurture an aspiring middle class population and,barring any economic surprises, this should underpin balanced

retail growth for the next decade.

While growth in retail demand is unprecedented, the surge insupply is stronger still, and as a result, many major cities in Chinahave the potential for some measure of oversupply. Oversupplystands to affect weaker projects in the market; expect suburbanlocations and inexperienced developers to be most vulnerable,with high vacancy and project failure in extreme cases.Oversupply will have little impact on prime rents which willcontinue to exhibit strong growth as retailers compete for keylocations to de ne their brand in China and generate thestrongest sales. The top retail centers in China including ShinKong Place in Beijing, Grandview Plaza Guangzhou, MixCShenzhen achieved sales of around US$ 1 billion per annum andrising.

The recent crackdown on gift-giving to government of cials hashad a signi cant impact on some luxury brands, notably thosefocused on watches and accessories. A study by Italian luxurygoods association Altagamma and consultants Bain expectsGreater China luxury sales growth to fall to 6-8% in 2013, downfrom an estimated 20% in 2012. While sales growth may slow,Chinas love affair with luxury is expected to last for some time.Despite sometimes limited spending power, luxury demand islikely to broaden beyond the best known brands as moresophisticated consumers begin to discover their own style.

INDIA India is Asias 3rd largest retail economy after China and Japan, with projected sales of US$ 412 billion in 2013. Indiasretail market is currently just one fourth of the size of China,however the market is opening up and with a young populationwhere average age of the workforce is below 30 years, the markethas a strong potential. International retailers have historicallyentered mainly through partnership and retailers such as M&S,Inditex, and Lacoste have found signi cant success through thisroute. Now as investment regulations have relaxed, a newgeneration of retailers including H&M are investigating thepotential to enter the market directly without a partner.

The retail growth story in India has taken off swiftly in the lastdecade largely supported by a buoyant economy and a cohort ofhigher than average spending adults (43 million with incomes

higher than US$10,000) along with a large workforce aged 25 to54 that accounts for about half of its population. Luxury retail hasa limited presence in the top 5 cities in the country. However abroad range of brands are already in the market including LV,Montblanc, Bvlgari, and Richemont. Mid-priced fashion and foodand beverage (F&B) segments have managed to grow ratherquickly and have expanded into several Tier 2 and Tier 3 cities.Forever 21, M&S, Zara, Clarks, Lacoste, Starbucks and DunkinDonuts are among the more active brands expanding in themarket.

INDONESIA With a population of over 200 million and amaturing economy, Indonesia has retail sales of US$ 145 billion in2013, making it Asias 6th largest retail economy. It has grownsteadily on the back of rapid economic development that hasgiven rise to a growing middle class. Steady growth in retail salesof 5-6% for over a decade has also prompted internationalretailers to expand their footprint in this Southeast Asias risingstar. Jakarta, the nations capital and the center of commerce andgovernment, has been the focus of retail investments, however,with the recent regulations ceasing all new permits for shopping

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centers in Jakarta, the focus of development is shifting to includeother major cities such as Surabaya, Medan, Bandung, Balikpapan,Makassar and others. Foreign hypermarket brands are activeacross the country and Carrefour, Lotte and Giant are among theinternational hypermarket operators aggressively competing withlocal players such as Hypermart, Indomarco Prismatama and Heroto tap the retail market in urban areas. A young population is alsoanother major factor attracting retailers to Indonesia, with thegroup aged 25-54 years accounting for more than 40% of the totalpopulation. H&M, Uniqlo, Zara, Quicksilver, Rip Curl and GalleriesLafayette have entered the market recently taking note of thestrong economic fundamentals and the scale of opportunity thecountry can offer over the next 15-20 years.

THAILAND Thailand is Asia 8th largest retail economy countrywith sales of US$ 81 billion in 2013 and is next in line toIndonesia in emerging markets. Booming tourism and risingincomes of its spending class population have certainly fuelledretail growth in Thailand. Retail sales in Bangkok have beengrowing at an average of 9% annually for over a decade, and thecity accounts for more than half of national retail sales, supported

by strong tourist spending. Uniqlo is expanding steadily while Pull& Bear, Zara Home, Sephora and Victorias Secret have enteredthe market recently. Rapid expansion in F&B and conveniencestore network in the country indicates rising incomes at the lowend of the income chain, and a market poised for a steady growthin F&B and fast fashion segments over the next 5-10 years.

VIETNAM Vietnam closely follows Thailand with retail sales ofover US$ 67 billion in 2013. The return of stronger economicgrowth is set to lift living standards and aspirations, and certainlypresents sustainable, long-term opportunities for retailers. HoChi Minh City, which is the nations economic center, is typicallythe entry point for international retailers. Notably, retail saleshave grown at an annual average of 11% during the last decade.Recent expansions by Aeon Livingmall, Lotte, Lego, Louis Vuitton,Ferragamo, Uma and the entry of Dior, Starbucks and DunkinDonuts, among others, indicate growing opportunities in Hanoiand Ho Chi Minh City. In terms of shopping centre supply themarket has been active with Vincoms 230,000 sq.m Mega Mall Royal City, opening in 2013 in Hanoi. While new developmentsare attracting the crowds, rst generation shopping centers are insome cases suffering due to increased competition.

THE PHILIPPINES The Philippines has also taken on a newsigni cance for retailers, brought about by propitious economicpolicies and favorable demographics. Notably, consumptionaccounts for over 70% of the countrys GDP, thanks to rising jobs,incomes and steady overseas remittances. The country also

boasts a relatively young, skilled and English-speaking populationwhich has been a huge draw for offshore business services.Reputed brands such as M&S, Guess, Uniqlo, H&M, Esprit,Aeropostale, Charles and Keith and American Eagle etc. havealready established operations in Manila, the nations capital, andare considering expansion within the country keeping in mind acontinued strong growth in BPO, tourism and service industries intier II cities such as Cebu and Davao. As solid economic prospectsspur urbanization and ris ing incomes, and considering further thesize of its young population, domestic and international retailersstand to nd abundant opportunities throughout the country. Themarket is dominated by a few major developers including SMPrime, Ayala and Robinsons which, in turn, means retailers have asmall number of very important relationships to manage in thecountry.

MALAYSIA The country is not new to branded retail growthand its capital, Kuala Lumpur, is consistently ranked as one of thebest shopping cities in the Asia Paci c region. Both luxury retailand fast fashion segments have a well established presence in thecity. A strong and young consumer base with an average of 4-5%annual rise in disposable incomes continues to support brandedretail growth in the city. Michael Kors, Uniqlo, and Tangs haveincreased their footprint in the city recently. H&M, RadioShack,Billabong, Longchamp and Lonely Planet are some of the newentrants in the last 12 months. Retail tourism and a positivelong-term economic outlook will continue to buoy the retailsector in the city.

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CONCLUSION

The retail growth story in Asia, especially in emerging markets, is real and likely to continue over thelonger term. Though near-term growth has shifted to a lower gear, long-term prospects remain intact givensolid economic growth and relatively favorable demographics, especially in growth markets in South andSoutheast Asia. However, continued high growth alone may not be suf cient to boost consumption; policyreforms and signi cant infrastructure investments are needed for balanced and inclusive growth. Thechallenge is for retailers to take advantage of this multitude of opportunities in these diverse retailenvironments, while adapting to complexities that are unique to Asian markets.

For more information about C&W RetailTenant Representation, please contact:

James Hawkey

Managing DirectorRetail Services, Asia Paci c +852 2956 7820

[email protected]

James Assersohn

DirectorCross Border Retail, Asia Paci c +86 21 2320 0738

[email protected]

Theo Knipfng DirectorRetail Tenant Representation, Asia Paci c+86 21 2320 0775theodore.knip [email protected]

Sigrid ZialcitaManaging DirectorResearch Services, Asia Paci c +65 6232 0875 [email protected]

Lai Wyai KaySenior ManagerResearch Services, Asia Paci c+65 6232 [email protected]

Cushman & Wake eld (C&W) is known the world-over as an industry k nowledge leader. Through the delivery oftimely, accurate, high-quality research reports on the leading trends, markets around the world and business issuesof the day, we aim to assist our clients in making property decisions that meet their objectives and enhance theircompetitive position.

In addition to producing regular reports such as global rankings and local quarterly updates available on a regular basis,C&W also provides customized studies to meet speci c information needs of owners, occupiers and investors.

Cushman & Wake eld is the worlds largest privately-held commercial real estate services rm. The company advisesand represents clients on all aspects of property occupancy and investment, and has established a preeminent positionin the worlds major markets, as evidenced by its frequent involvement in many of the most signi cant property leases,sales and management assignments. Founded in 1917, it has approximately 250 of ces in 60 countries, employingmore than 16,000 professionals. It offers a complete range of s ervices for all property types, including leasing, salesand acquisitions, equity, debt and structured nance, corporate nance and investment banking, corporate services,property management, facilities management, project management, consulting and appraisal. The rm has nearly $4

billion in assets under management globally. A recognized leader in local and global real estate research, the rmpublishes its market information and studies online at www.cushmanwake eld.com/knowledge.

This report has been prepared solely for information purposes. It does not purport to be a complete descriptionof the markets or developments contained in this material. The information on which this report is based has beenobtained from sources we believe to be reliable, but we have not independently veri ed such information and we donot guarantee that the information is accurate or complete. Published by Corporate Communications.

2012 Cushman & Wake eld Inc. All rights reserved.

Units 602-607, Tower 1, China Central Place,No. 81 Jianguo Lu,Chaoyang District,BeijingChina100025

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Nagaraj Kapil KanalaSenior Manager, Research ServicesAsia Paci cT +(91) 40 4040 5531E [email protected]

Megha MaanSenior Manager, Research ServicesNCR, IndiaT +(91) 124 469 5555E [email protected]

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uncovering opportunities in asia's shifting retail landscape

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