Asia, Latin America are driving the global shopping centre revival
According to “A Global Perspective on the shopping Centre Industry”, a new global retail report from US Cushman & Wakefield and the International Council of Shopping Centres (ICSC) has been released at the occasion of the 2012 ICSC Retail Real Estate World Summit in Shanghai (PRC) on September 10, 2012 and is focusing on global retailers and macroeconomic and consumer trends having an impact on the global shopping centre industry, as well as demand and rent trends from shopping centres within each region of Asia Pacific, Europe and the Americas
One of the findings is rather known: the changes in consumer preferences, spending patterns and technological advances have had an impact on owners and retailers in all regions. All claim that they provide consumers with their desired full shopping “experience” and with the increasing maturity of e-commerce, owners are using technology in new ways, including smart phone applications, virtual malls and social media events – to drive visitor traffic to their shopping centres. But the physical shopping centre is still at the heart of a consumer’s retail experience, stated Glenn Rufrano, President and CEO of Cushman & Wakefield. The shopping centre sector remains a truly dynamic sector of retail real estate, claims John Strachan, Global Head of Retail for Cushman & Wakefield.
Globalisation is an important driver in the shifts occurring in the shopping centre industry, while consumer behaviour is differing throughout the world and these factors have had a large impact in shaping the formats of shopping centres throughout the globe.
The U.S.A. has older and more mature super-regional shopping centres located in suburban areas, while in Europe prime shopping centres are generally less abundant and can be located in central locations or along major traffic routes. In Asia, density reigns supreme due to its high population. However, the five largest shopping centres in the world are located in China, Philippines, Malaysia and Thailand.
It is also Asia Pacific leading the three world regions in terms of rental growth for shopping centres, with rental rates increasing 2.8 % over the past year. Asia Pacific’s booming consumer class, new economic policies are supporting retail and growing international scope have promoted the region’s strong performance, and will also support future expansion. Rental rates of over USD 927 per square foot for its prime shipping centres, Hong Kong’s high volume of mainland tourists and dearth of prime shopping centre space has made it home to the world’s highest retail rates. Rents in Shanghai and Beijing, which are popular entry points for international retailers, have climbed to USD 404 per square foot, respectively USD 368.
Asia Pacific’s promising retail future has led to significant new development, with 300 million square feet of retail projects in the first half of 2012. While some cities are at risk of overbuilding, positive long-term economic and demographic conditions will provide a strong platform for growth and absorption of new shopping centres across the region.
Latin America has been the bright spot in the Americas, fuelled by a different set of economic drivers, including a strong middle class, which, coupled with the existing wealthy class, has tremendous untapped spending power and high consumption rates. As a result, major international retailers from the U.S., Europe and Asia are expanding throughout Latin America, and the vacancy rate at many of the region’s top luxury malls is between two and three percent. Markets with the highest rental rates include Argentina, at USD 500 per square foot, São Paulo at USD 309 and Colombia at USD 250.
Let’s have also a quick look to the USA where growth in consumer spending and retail sales has resulted in a positive demand for prime malls in America and Canada. Occupancy and rental rates have increased in urban luxury malls that cater to tourists in gateway cities, such as New York, Washington, D.C., Miami, Los Angeles, San Francisco, Las Vegas, Toronto and Vancouver. Pockets of wealth have driven strong demand for high-end and luxury products, while retailers in the middle are struggling with low revenue growth and declining revenues as mall owners are replacing them with high-end tenants. In the third quarter 2012 statistics on New York City’s Manhattan Cushman & Wakefield declared on October 2, 2012 that Midtown South is Manhattan’s hottest submarket with an overall 6.6 percent vacancy rate. The Manhattan vacancy rate was 9.6 % and 5.7 million square feet of new leasing activity. Despite of the year-over-year decline in quarterly leasing, leasing activity of the third quarter is not far off from the 6.0 million square foot ten year quarterly average. A total of 16.8 million square feet of new leasing activity closed in the first nine months of 2012, in 2011 the figure was 24.1 million, the slowdown follows a year in which Manhattan office leasing reached the highest total since 2000 with 30.1 million square feet of new leasing activity. The average asking rent for overall Manhattan space totalled USD 58.83 at the end of the quarter or an increase of 4.8 % on an annual rate. The class-A asking rent is USD 67.06 or 3.7 % higher than a year ago.
Interestingly enough, amid the turmoil of the European debt crisis, the prime shopping centre market in Europe remains stable but of course country performance has been mixed, with annual rent growth rates between zero and 0.5 percent (!). Countries seeing the strongest levels of economic expansion are also experiencing the strongest rental growth, including a seven percent increase in Poland and a four percent increase in Turkey. Markets with the highest rental rates include Moscow (Russia) at USD 372 per square foot, London (GB) USD 279 and Zurich (CH) USD 255.
Tenant demand in Europe for well located prime shopping centres remains strong, with some retailers preferring to expand into shopping centres rather than opening high street stores, thus sustaining demand for available space. The availability of large units in prime shopping centres remain in short supply, with vacancy rates for prime centres trending on par or lower than those on high streets. New supply remains limited, with only 69.8 million square feet of new shopping centre space delivered in 2011. More than two thirds of the new development is located in Central and Eastern Europe, with Russia, Turkey and Poland all poised to see significant new supply along with strong economic expansion.
Of course recent developments have probably changed some of these findings such as to consumer behaviour on spending in the Euro Zone, but all other cited results seem to be tending in the direction mentioned.