Asia leads recovery of global retail market

LONDON: Asia is leading the recovery in the retail market with few markets seeing any significant rental declines, with the majority either stabilising or posting modest growth in 1Q2010, according to CB Richard Ellis (CBRE)’s latest Global MarketView report on the retail sector.

Asia is the only region of the world where economic growth is starting to feed through into retail sales increases, and this is now starting to impact on real estate markets, said CBRE.

Retail leasing activity in major Asian cities, except for Japan, continues to pick up and a number of international retailers are looking to expand across the region, particularly in Hong Kong, Beijing and Shanghai.

However, the risk of supply imbalance remains in certain cities in mainland China, India and Singapore, where large amounts of shopping centre construction are expected to be delivered in the next nine months.

In Europe, Middle East and Africa (EMEA), the region continues to dominate the world’s most expensive retail markets with 10 markets in the top-20 global retail rental markets. London, Paris and Moscow are the three most expensive EMEA markets in 1Q2010, ranked 4^th, 5^th and 6^th respectively.

Overall, the EMEA region’s retail rent index saw a quarterly decline of –1.7% as prime retail rents fell in several markets such as Abu Dhabi and Athens, which experienced a decline of 24.5% and 12.3% quarter-on-quarter (q-o-q), respectively.

CBRE noted that occupier demand remains fairly stable across the EMEA region. Retailers continue to negotiate with landlords to secure longer rent-free periods and more favourable lease terms, while demand for prime stores is strong and is reflected in the stabilisation in some markets, and growth in rents in others.

"Whilst performance across Europe remains diverse, many retail markets in Western Europe have rebounded surprisingly well in 1Q2010, including London, Paris and Berlin. In some instances, competitive tensions have arisen again, with retailers bidding aggressively to secure the best sites. As elsewhere in the world, the gap between prime and secondary locations and markets remains acute, as was the case in 2009. It is too early to tell whether this gap will narrow during the remainder of the year,” said Peter Gold, Head of Cross-Border Retail -- EMEA, CBRE.

In the US, New York ranked as the most expensive destination in the top-20 global retail rental markets with Los Angeles and Chicago at 12^th and 14^th respectively.

The economic recession impacted the luxury goods retailers the most in the US, while discount goods retailers fared better in 1Q2010. CBRE expects retail vacancy rates for all property types to continue increasing in 2010 before levelling off in early 2011.

Meanwhile, Latin America registered some of the strongest growth in retail rents with Santiago and Mexico City seeing increases of 12% and 13% respectively, y-o-y.

In the Pacific region, the strengthening consumer confidence in 1Q2010 was tempered by rising interest rates, which brought on consumer caution and preventing any significant increase in retail sales.

Retail rents in the central business districts (CBD) generally continued their strong performance in the quarter under review, although rents in some shopping centre categories fell slightly this quarter.

Although New Zealand saw increasing vacancies and longer lease-up periods in 2009 due to more difficult trading conditions, prime CBD strip retail rents have started to increase. This is attributed to activity from start-up retailers, plus the current market offers opportunities for retailers with sufficient resources to secure premises in prime locations that were not available during the past few years.

Commenting on the overall global picture, Ray Torto, CBRE’s Global Chief Economist, said: “Retailers still face uncertain trading conditions and continue to put pressure on landlords to offer incentive packages. However, market pressures have not stopped retailers from expanding and demand for prime retail space remains strong in many markets across the world. This, combined with low vacancy rates, has created supply-demand imbalances in some markets. However, the rental disparity between prime and secondary locations is generally increasing. Whilst prime space is doing well, secondary units are typically seeing higher vacancy, lower retailer demand and falling rents.”