Asia’s middle class is set to triple, from 525 million in 2009 to over 1.7 billion by 2020. China, India and Indonesia will also all be in the top ten global markets for retail consumption demand by 2020.
CBRE’s latest report, “The New Age of the Asia Pacific Retail Market,” reveals that as a result, the region is now experiencing an upsurge of new retail construction to meet demand as international retailers flock to the region.
International retailers—predominantly fast fashion brands—are continuing to enter and expand in Asia=Pacific at a rapid rate, despite concerns over the slowdown in economic growth and retail sales, especially in China.
CBRE said Hong Kong, Beijing and Shanghai have seen the strongest flow of new market entrants looking to capitalize on the China growth story.
Tokyo saw the strongest activity in 2013 and momentum has continued in 2014, particularly from luxury brands, which has underpinned strong rental growth this year.
In Southeast Asia, Singapore has been the main hotspot, while both Taipei and Seoul are among the most active markets globally for new retailer entrants.
According to CBRE, overall retailer demand in Asia-Pacific is set to remain subdued heading into 2015 but activity and demand levels will diverge across different markets.
“Japan and Australia are expected to remain upbeat, while activity in India should pick up on the back of relaxation of foreign direct investment in single and multi-brand retail. China, Hong Kong and Singapore will stay relatively quiet due to softening domestic consumption, in addition to Chinese shoppers’ weaker appetite for luxury goods,” said Jonathan Hsu, Director at CBRE Research, Asia-Pacific.
He noted that international retailers tend to expand to secondary cities in the region after establishing their presence in capital or tier I cities.
“Key emerging markets in Southeast Asia, such as Hanoi and Ho Chi Minh City in Vietnam and major cities in Indonesia, Malaysia and the Philippines, will be a strong area of focus due to the growing appetite for consumer goods and relaxation of foreign investment regulations next year. The construction of new high quality shopping center supply is providing more options for retailer expansion in these markets,” he added.
In terms of retailer types, CBRE expects mass market brands to look towards highly populated markets—primarily China and India—for expansion in 2015.
Retailers in the luxury sector will opt to focus on the mature markets of Japan, Singapore and Hong Kong, with China less of a priority due to the ongoing anti-corruption campaign. Bridge brands will concentrate on slightly more mature markets, including Japan and South Korea.
There are, however, challenges ahead for retailers, including rising operational costs, the rapid growth of e-commerce, and a more sophisticated and demanding consumer base, contributing to a more competitive market.
Retailers will have to implement higher standards of due diligence, competitor benchmarking and strategic planning as the retailing environment turns increasingly competitive. Retailers are also putting a general focus on portfolio reviews and consolidation, although they’re continuing to display a strong interest for well-established properties and locations in markets with a proven track record,” said Sebastian Skiff, Executive Director, Retail Services.