High operating costs – particularly rents and labor in Asia – will ensure retailers are more cautious this year, concludes real estate specialist CBRE.
In its annual Asian retail outlook, the company’s research department predicts many retailers will shift their strategic focus from expanding their store networks to rationalisation, improving in-store profitability and upgrading to better locations.
That trend is expected across the broad Asia-pacific market, including Hong Kong.
“Leasing activity will diverge across markets, with Australia, Japan and New Zealand the most upbeat, whereas Hong Kong and Singapore will continue to struggle,” CBRE concluded.
“Driven by ongoing urbanisation and wage increases, Southeast Asia will also see solid leasing activity. Demand across the region will be led by food and beverage retailers, while affordable and niche luxury brands will also be active.”
CBRE also warns the rise of online shopping will continue to force shopping malls to embrace ‘retail-tainment’ and adjust their trade mix to include more experience-oriented retailers to retain foot traffic. Around 63.8 million sqft of new shopping center supply is scheduled to be completed in 2016. Against the sluggish leasing demand and ample new supply, overall retail rents are forecast to experience a mild correction of below 1 per cent in 2016.
In a broader property outlook, CBRE forecasts that due to Asia Pacific’s steady economic growth – which will continue to outpace the rest of the world in 2016 – investment activity in the region will remain solid, although activity will be limited by asset pricing and availability.
“The region’s investment market will continue to see strong demand from real estate funds and institutional investors. Institutional investors will continue to invest in Asia Pacific to increase their exposure to real estate for strategic diversification,” said Dr Henry Chin, head of research, CBRE Asia Pacific.
“That said, Asia Pacific will enter a period of slower growth in the commercial real estate market with activity likely to moderate over the course of the year as it becomes more challenging to source investable stock able to meet investors’ target returns. Interest rates will remain low in 2016 so yields are largely to remain stable across Asia Pacific. However, we are expecting to see a mild yield expansion in 2017 together with the rise in interest rates.”
The economic slowdown in China – as well as higher-than-expected US interest hike rates, and currency volatility – will also remain a key concern for investors, given the scale of its impact across the whole region.
“However, macro trends of urbanisation and the rise of the middle class remain largely unchanged and will continue to drive growth across Asia.
“There are structural investment-themed opportunities for investors to focus on in 2016, such as the growth of e-commerce, regional tourism and demographic changes. Demographic changes will create opportunities in niche sectors such as self-storage facilities, senior and student housing, and data centers,” said Chin.
“Regionally, active markets will continue to be led by Australia and Japan, whilst India expects to see a positive year following the relaxation of FDI norms at the end of last year.
“China will also remain on the radar for most international investors although demand will be largely confined to tier I cities. Overall, the long-term outlook remains positive for the region,” he concluded.
CBRE’s 2016 APAC Real Estate Market Outlook report can be downloaded here.