Retail in Asia


Which Asian cities are returning to physical retail in 2021?

As the world learns to live with Covid-19 and businesses and retailers start to reopen, major cities in Asia are also witnessing the return of physical retail, whether it be along shopping strips and popular high streets, or within malls and department stores.

While retail footfall and tourism are still below pre-Covid levels, an in-depth look into the retail vacancy levels and rental prices of retail spaces in the second quarter of 2021 provides a snapshot of the current retail climate for business and consumers.

Which cities have bounced back from the pandemic quicker than their Asian counterparts? Which industries are driving the return to physical retail? And, how long will it take for consumer footfall and tourism retail to return to major Asian shopping hubs?

Retail in Asia got the scoop from real estate experts, sharing the latest retail and rental data across major cities Hong Kong, Seoul, Tokyo and Singapore.

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Hong Kong

Hong Kong’s dropping retail vacancy rates and an increase in retail leasing in the second quarter signalled a return to physical stores in the region, as the retail market sentiment continues to improve, according to industry experts.

Hong Kong’s retail sales value in May rose by 10.5 percent year-on-year, after a 12.1 percent increase in April, while unemployment in the city dropped back to 6 percent in May from 6.4 percent in April, government data showed.

Signalling a physical retail revival in Hong Kong, rents in both prime street shops and major shopping centres stabilised after 18 months of decline in the second quarter, registering a quarter-on-quarter growth rate of 0.3 percent and 1.2 percent, respectively, according to Savills Research.

F&B, grocery-related stores and athleisure brands remained the key market drivers during the first half of 2021, with key openings including American Eagle Outfitters, which took the first three floors of the LHT Tower in Central, and Hang Seng Bank, which signed on to occupy the first two levels of the Hing Wai Building at 36 Queen’s Road Central.

F&B related retailers accounted for 40 percent of leasing volume in the second quarter, said CBRE. U.S. burger chain Five Guys leased a 7,000-square-metre space on Russell Street in Causeway Bay, while restaurant chain God of Teppanyaki locked in a 14,300 square foot unit in Sino Plaza.

Supported by strong local demand, Hong Kong’s suburban shopping centres outstripped their counterparts in core areas, registering an increase of 3.7 percent in rents over the second quarter.

Hong Kong’s high-street shop vacancy fell to 15.4 percent during the quarter, said CBRE, with vacancy rates in three out of four core areas declining. Central district dropped below 10 percent.

Looking ahead, local consumption is expected to continue to drive retail sales and in turn, rents, in Hong Kong for the remainder of 2021, thanks to the rollout of the government’s consumption voucher scheme, as borders stay restricted.

High-street rents are expected to increase by 5-10 percent for the rest of 2021, added CBRE.

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Singapore’s retail market is still being battered by restrictions due to the Covid-19 pandemic and looks to remain hindered for the rest of 2021, with experts warning that recovery for retail rents is more likely take place in 2022.

Singapore retail sales declined 6.3 percent month-on-month in May, with stricter measures put in place from May to June, as part of Phase 2 of the nation’s lockdown. Department stores, apparel and footwear and watches and jewellery were the most affected categories, as F&B operators adjusted to the restrictions with takeaway options being rolled out.

During the second quarter, island-wide prime retail rates fell 0.4 percent quarter-on-quarter, according to CBRE, after a 1.2 percent drop in the first quarter. That figure was upheld by suburban markets, where prime spaces registered stable reversionary rents, narrowing the gap between prime Orchard area and Singapore’s suburban locations.

In the second quarter, monthly prime rents in the Orchard area continued to fall by 4.8 percent quarter-on-quarter, compared to prime rents in suburban areas, down by 1.9 percent, according to Savills.

Islandwide vacancy levels remained unchanged at 8.5 percent in the second quarter, stabilised by suburban vacancy rates which eased to 5 percent, the lowest level since 2016. Meanwhile, the vacancy level in the Central Area increased across the board, hitting record levels in every sub-area, attributed to subdued demand as the office and tourist crowd remained far below pre-pandemic levels, added Savills.

Despite the slow recovery in tourism, retailers remain confident that tourism spending and shopper traffic will return to the Orchard area and beyond once travel restrictions are eased. In a sign of promising times ahead, several new F&B openings have taken place along the Orchard shopping belt in recent months. Lady M patisserie set up its sixth outlet, introducing its first bar at ION Orchard, while San Francisco’s cruffin bakery Mr. Holmes Bakehouse, made its debut in Singapore in July at Pacific Plaza.

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In South Korean capital, Seoul, the second quarter saw strong demand for luxury goods, leading to sales growth and business expansion by related retailers, according to CBRE.
Retail sales reached US$79.9 billion in the second quarter, up 6.9 percent on the same period last year, driven by luxury sales and a rapid recovery seen in department stores, as well as online, despite the high-street feeling the weight of less footfall.

In the quarter, luxury brands expanded their retail footprint in Seoul, particularly in high demand leasing areas including Hannam-dong, where in May Gucci opened its second flagship store, as well as the areas of Garosu-gil, and Cheongdam-dong.

Several online retailers also made their physical retail debut in Seoul. Online fashion retailer Munisa opened its first-ever store in Hongdae in May, covering 850 square feet of retail space. Meanwhile, department stores expanded their luxury offerings in-store.

Despite the openings and expansions, major highstreets in Seoul continued to witness high vacancy levels, namely Myeong-dong and Gangnam Station, due to less tourist footfall thanks to the pandemic and consequential border closures.

Shopping mall rents inched up 2.4 percent in the second quarter, said JLL, while prime high street rents decreased marginally by 0.3 percent quarter-on-quarter.

Elsewhere, the pandemic’s resurgence in cases hit the opening of major retailers, particularly local ones. Lotte Department Store had to postpone its Dongtan location opening in the second quarter, while AK& Geumjeong’s debut has been pushed back until 2022.

Looking ahead, government regulations on containing the spread of Covid-19 will continue to hinder the retail market in the coming months, said CBRE. There are lingering market challenges which could hinder rent growth, added JLL. Improvement in consumer sentiment still largely relies on domestic footfall, which implies tourist locations such as Myeong-dong may need more time to witness recovery, it added.

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The luxury industry also drove demand for available rental properties in Tokyo during the second quarter, as local consumers return to physical shopping with a panache for luxury brand items, according to CBRE.

Like other major cities, the pandemic has accelerated the speed of digital transformation in Japan. However, in Tokyo, footfall in retail and recreational areas has already improved to about 80-90 percent of pre-Covid levels, according to Savills. And, as the vaccinations progress, the sector could look to further reassert its position going forward. For the quarter April-June, total retail sales increased 6.5 percent in Japan, pushed on by watches and jewellery, and online sales

During the second quarter, Ginza high street rents remained unchanged quarter-on-quarter. Available high street properties drew interest from multiple retailers, primarily in the luxury sector. The high street vacancy rate for the second quarter fell 0.6 points quarter-on quarter to 5.1 percent, largely due to strong demand from luxury and fashion brands. Likewise, Ginza prime rents remained unchanged for the 23rd consecutive quarter, said CBRE.

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An increase in newly developed buildings and availability in existing facilities attracted demand from retailers without a street-level presence in Ginza as well as those wishing to relocate within the Ginza area, said CBRE.

The Ginza area is renowned for its customers who regularly patronise existing stores, meaning maintaining a street-level presence in the area is of the utmost importance, and luxury brands are getting in now with new leases, with the expectation of holding them long-term, it said.