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Retail ResearchJune 2014

Tracking the expansion of retailers across Asia Pacific

A Magnet for Retail

Contents

05Introduction

08Retailer Expansion Trends By Subregion

18Retailer Origin

26Rental Analysis

29Chinese tourists influencing retail markets across Asia Pacific

31Appendix

06 Market Drivers

15 Luxury And Mid-Tier Expansion Trends

28 e-commerce – increasing impact across Asia Pacific

30 Conclusion

20 City Profiles

21 Hong Kong Shanghai22 Singapore Beijing 23 Tokyo Seoul24 Bangkok Hangzhou25 Sydney Mumbai

Asia Pacific continues to witness rapid economic growth which is raising the living standards of millions of people and driving retail demand. With persisting economic challenges in many developed markets, international retailers are increasingly looking to emerging markets such as Asia Pacific for growth.

In this report, we examine the presence and expansion patterns of 100 top international retailers, both luxury and mid-tier, in 30 major cities in Asia Pacific. We identify major trends in key markets across the region, taking into account factors such as retail sales, market size and rental rates. It is evident that the presence of international retailers varies across geographies and also by retailer category. However, with strong growth prospects we are seeing both mid-tier and luxury brands from different parts of the world expanding to numerous locations in Asia Pacific.

Introduction

Dr Jane Murray Head of Research, Asia Pacific

Tom Gaffney Head of Retail, Hong KongCo-Chair of Retail, Asia Pacific

Lee Fong Research, Asia Pacific

KK FungManaging Director for Greater ChinaChair of Retail, Asia Pacific

A Magnet for Retail | 5

Market Drivers

6 | JLL

Market DriversSheer market size, in terms of population and economic might, is one of the most compelling drivers for international retailers’ expansion into the Asia Pacific region. The region now accounts for 54% of the world’s population and the number of people will rise to 4.1 billion by 2020. At the same time, Asia Pacific already accounts for 36% of the world economy, and that share is set to rise to 40% by 2020 with forecast growth roughly twice as fast as the rest of the world from now to the end of the decade. China and Japan are currently the world’s second and third largest economies after the United States. With forecasts for strong economic growth, more countries in Asia Pacific will move up the rankings of the largest economies worldwide.

In addition, more city dwellers with rising incomes create huge potential consumer demand. Between now and 2020, an additional 40 million people per year will be living in cities across Asia Pacific. Urbanisation is one of ten major trends identified as reshaping global retail markets in JLL’s recent report, Redefining Retail Places (JLL, 2014). China and India account for the vast majority of people shifting to cities in the region, although by 2020 urbanisation rates in both countries (China 61% and India 35%) will still remain well below those seen in more developed markets such as Australia (90%) and Japan (95%).

Urbanisation is one of the main drivers of wealth creation across the region. Currently Asia Pacific accounts for one-third of the world’s middle class, and this is projected to increase to 46% by 2020 (The Brookings Institue, 2012). Rising income levels mean that many aspiring consumers can afford to purchase fashion or even luxury items for the first time, while large urban centres make for ideal entry points for retailers.

Strong growth in tourism is another important driver for international retailers. International travellers by themselves are important clientele for retailers in major cities. Additionally, tourism helps international retailers in a more intangible way - by raising consumer aspirations and increasing brand awareness, and also supports changing trends in fashion and technology. In 2013, Asia Pacific saw 248 million international tourists, 6% more than the year before and nearly a quarter of the world’s total (United Nations World Tourism Organization, 2014). By subregion, Southeast Asia witnessed the strongest growth with an increase of 10% y-o-y in international visitor arrivals and this was driven largely by intra-regional demand.

The rapid growth of Asia Pacific’s middle class

Source: JLL Research, The Brookings Institute (2012)

2006

24.3%391 million

32.7%690 million

45.7%1,320 million

75.7%1,220 million

67.3%1,410 million

54.3%1,570 million

2013 2020

Asia Pacific Rest of world


Retailer Expansion Trends By Subregion

8 | JLL

In this study, we examine the presence of 100 international retailers, half whom are luxury brands and the other half mid-tier. The 30 cities are geographically diverse and are located in both low- to middle- and high-income countries. A retailer is deemed to be present in a city if it has at least one store (dedicated shop). We have generally excluded branded shops located within department/multi-brand stores that do not have a dedicated shop area. However, in select markets such as Japan and South Korea, department stores are a prominent retail format and major retailers often exert significant control over these operations so we have opted to include such shops for these markets.

Retailer PresenceOur map of city rankings illustrates that there are subregional variations in retailer presence across Asia Pacific. We have generally observed that international retailers tend to make major Tier 1 cities their first point of entry, a similar trend that has been identified in Europe in the JLL report Destination Europe 2013 (JLL, 2013). Other factors such as growth prospects or regulations can also impact entry strategies of retailers. The bubble chart on page 13 shows that there is a correlation between the size of a city’s consumer spending market and/or retail sales growth rate with the level of international retailer presence. Greater China and North Asia generally have the highest level of retailer presence by subregion, while Australia and India have the lowest. When we look at the size of the store networks in the 30 cities, we notice a similar city-level trend with those having a high retailer presence generally having a greater number of stores.


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30

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1518

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1

13Shenyang

Beijing

Tokyo

OsakaHangzhou

BangaloreMumbai

Delhi

ChengduWuhan

NanjingShanghai

Seoul

Hong KongGuangzhou

Chongqing

Jakarta

Singapore

Kuala Lumpur

Ho Chi Minh City

Bangkok

Taipei

Manila

Shenzhen

Auckland

26 Brisbane

Sydney

Melbourne

Adelaide29Perth

10 | JLL

9

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Beijing

Tokyo

OsakaHangzhou

BangaloreMumbai

Delhi

ChengduWuhan

NanjingShanghai

Seoul

Hong KongGuangzhou

Chongqing

Jakarta

Singapore

Kuala Lumpur

Ho Chi Minh City

Bangkok

Taipei

Manila

Shenzhen

Auckland

26 Brisbane

Sydney

Melbourne

Adelaide29Perth

Hong Kong has the highest presence of international retailersRetailer presence ranking

Note: Ranking based on the presence of 100 retailers in major cities across Asia PacificSource: JLL Research

High-income city

Low- to middle-income city


Greater China – A rapid rise in consumption draws major international retailersCities in Greater China rank as the most attractive locations for international retailers in Asia Pacific, with Hong Kong being the top destination despite rentals that are significantly higher than elsewhere in the region (see chart on page 27). Shanghai and Beijing are second and fourth place respectively.

Many brands view Hong Kong as a stepping stone to enter China and in some circumstances Chinese brands use it as a platform or test market to expand outside of their domestic market. An affluent population and a high number of tourists, largely from Mainland China, fuel a high level of retail spending. In 2013, the city saw 40 new retailers enter the market with several such as Oroton and Topshop setting up flagship stores.

On the Chinese mainland, most retailers set up shop in Shanghai and Beijing before moving to other cities in the country. As the bubble chart shows, large consumer market sizes and strong retail sales growth rates (historical 3-year annual average growth ranging between 15-17% for major cities) have lured retailers to set up shop in China. Strong growth prospects and rapid urbanisation, which will see more than 130 million new people living in cities by 2020, should continue to stimulate demand and further expansion of retailers in the country.

North Asia – Large mature markets with a high number of retailers presentThe relatively mature and high-income retail markets in North Asia have a high level of international brand penetration. Tokyo, Osaka and Seoul all rank in the top 10 for retailer presence in Asia Pacific with many brands having a long established presence, in particular luxury brands in Tokyo. These very large, developed consumer markets have long been a draw for retailers and as a result many have extensive store networks in these cities. Global luxury retailers such Louis Vuitton and Gucci have been present in Tokyo for over three decades. Despite consumer spending markets that are significantly larger than other cities in Asia Pacific, Japanese cities do not top the table for international retailer presence due in part to strong domestic brands that dominate distribution channels, which has made it difficult for new brands to enter. However, improving optimism about the economy on the back of Abenomics is seeing new brands enter Tokyo looking to tap into its large high-income population.

Southeast Asia – Emerging middle class supporting retailer expansionInternational brand expansion in major Southeast Asian markets has picked up in recent years, as robust economic growth has created a larger consuming population. The subregion’s most modern and affluent city, Singapore, is a highly sought after location for retailers and is the third most popular destination in Asia Pacific. Aside from retailers looking to tap into the local consumer base, the city is often used as a hub for expansion into other larger Southeast Asian markets. Thailand’s capital and tourist haven Bangkok, rounds out the top 10 ranking with a large number of international brands present in the city’s central areas. However, peripheral areas of Bangkok and other large Thai cities are increasingly popping up on retailers’ radars for expansion. This trend is likely to become more evident across the Southeast Asian subregion as the urban population is expected to grow by more than 45 million people in the next seven years. With urban dwellers’ incomes generally surpassing those in rural areas, this will support a rise in demand for discretionary goods in many cities including Jakarta, Kuala Lumpur and Ho Chi Minh City.

12 | JLL

Note: Nominal retail sales. Bubble size refers to total city-level consumer spending. Source: JLL Research; Oxford Economics (2014)

Sales growth and market size influence retailer presence Retailer presence index ranking vs. retail sales growth

Sydney

Melbourne

Seoul

Jakarta

Singapore

Taipei

Brisbane

Perth

Manila

Kuala Lumpur

Adelaide

Mumbai

Auckland

Delhi

Wuhan

Nanjing

Ho Chi Minh City

Bangalore

Hong KongShanghai

Beijing

Chongqing

Guangzhou

Bangkok

Shenzhen

Chengdu

Hangzhou

Shenyang

Osaka

Tokyo

Retai

ler P

rese

nce I

ndex

Ran

king

20

40

60

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120

–10% –5% 0% 5% 10% 15% 20% 25%

Average annual retail sales growth (2011–2013)

Greater ChinaNorth AsiaSoutheast AsiaAustralia / New ZealandIndia


Australia / New Zealand – Many foreign retailers just beginning to arriveFurther down the rankings are cities in Australia and New Zealand, which despite high-income levels remain untapped by many foreign retailers. Small city populations and/or relatively low retail sales growth rates are likely partly attributable to the limited entry of international retailers to date. However, the expansion of retailers is on the rise in line with the stable economic environment offered by these countries. In Australia, several major brands have recently entered the market and brands such as Marks & Spencer and Sephora are set to open stores by end-2014 and mid-2015 respectively. In New Zealand, Prada and Christian Dior have committed to opening stores later this year. In a move away from the traditional entry strategy, many brands are opting to set up standalone stores rather than enter via department stores. There has also been evidence of retailers developing an online presence to test the market or raise brand awareness before setting up a physical footprint.

India – Limited presence of international retailers amidst regulatory uncertaintyCities in India have a relatively limited presence of international brands despite enjoying a high level of economic growth in the past decade and having large urban populations. International retailers have shown a keen interest to go into these markets but progress has been slow largely due to regulatory uncertainty surrounding retailing by foreign businesses. The recently elected government is expected to provide more details on their policy stance towards foreign retailers later this year but there is uncertainty as to how they will proceed. Similar to China, a focus on urbanisation will see a large number of people move to cities, with the urban population expected to grow by 70 million in the next seven years. Despite entry hurdles for foreign retailers, strong growth prospects have encouraged retailers such as H&M and Lush to announce plans to enter the country’s retail market.

14 | JLL

Luxury And Mid-Tier Expansion Trends


Growing wealth creation driving demand for luxury goods Luxury retailers have had a long presence in mature markets in Asia Pacific. They expanded their networks further following the global economic crisis in 2008, as consumers in Europe and the US reduced spending following a decline in net worth and an appetite for luxury goods in Asia Pacific continued to grow. If we look at luxury spending on a global level, Asia Pacific has five of the ten top cities (Hong Kong, Tokyo, Seoul, Beijing and Shanghai) according to Bain & Company (2013). Strong demand is being supported by a large affluent population, with Asia Pacific having three of the five top cities worldwide for most millionaires (Tokyo, Singapore and Hong Kong) and a further eight in the top 30 (Osaka, Beijing, Seoul, Taipei, Shanghai, Sydney, Melbourne and Mumbai) according to WealthInsight (2014).

Traditionally Japan has been the key market of the luxury segment in Asia Pacific. More recently China has been the driver of growth benefiting from a strong economic performance which has propelled wealth levels. By nationality, Chinese are estimated to be the largest luxury spenders worldwide, although at the domestic level (excluding Hong Kong and Macau) China still trails the US, Japan and Italy. Since late 2013, the Chinese government’s austerity campaign has seen growth of luxury goods sales slow significantly. The slowdown has not been across the board, however, with light luxury (more affordable) brands such as Coach, Kate Spade and Michael Kors doing well with strong same store sales growth figures. Rising tourism flows are also seeing Chinese consumers shift demand for luxury products outside of their domestic market (see page 29). In 2014, Japan is expected to be a global leader in the growth of luxury goods sales, as the positive effects of Abenomics flow through to improved domestic consumption (Altagamma, 2014).

Emerging middle class supports mid-tier retailer expansion across Asia PacificMid-tier brands are targeting the region’s growing middle class population, which is expected to nearly double by 2020 to 1.32 billion (The Brookings Institute, 2012). Currently China has the largest middle class population in Asia Pacific at 250 million, while Japan and India take second and third spots respectively with 120 million and 90 million. By 2020, China’s middle class population is expected to almost double to 590 million while India will triple to 290 million. Japan’s aging population will see its middle class consumer base decline slightly.

In China, the growth of the middle class and new anti-graft measures are putting a greater focus on mass market or affordable products. Elsewhere in the region, mid-tier international brands continue to expand at a time when some luxury brands are re-evaluating growth strategies. In the past year, major mid-tier brands such as Abercrombie & Fitch, American Eagle and Old Navy, to name a few retailers, have expanded into new markets and further store openings have been announced. As seen in the next chart, the geographical reach of mid-tier retailers is generally narrower than that of luxury brands. However, the sheer number of stores in their networks is often greater.

16 | JLL

Top luxury brands present in most Asia Pacific marketsRetailer presence ranking, segmented by luxury and mid-tier

Note: Some cities are equal rank e.g. Bangkok and ChengduSource: JLL Research

Adelaide

Perth

Auckland

Bangalore

Brisbane

Mumbai

Delhi

Chongqing

Ho Chi Minh City

Wuhan

Sydney

Melbourne

Guangzhou

Hangzhou

Shenzhen

Nanjing

Manila

Shenyang

Jakarta

Chengdu

Bangkok

Kuala Lumpur

Taipei

Osaka

Seoul

Tokyo

Beijing

Singapore

Shanghai

Hong Kong

30

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City Rank

0 10 20 30 40 50 60 70 80 90 100

Retailer Presence Index Ranking

Luxury

Mid-tier


Retailer Origin

18 | JLL

Source: JLL Research

Turning to the country of origin of international retailers, the US has been to date the number one exporter of retailers to Asia Pacific with Italy and the UK in second and third spots. Of the major US brands, Tommy Hilfiger and Coach are amongst the top brands with the highest presence in Asia Pacific. By retailer segment for US brands, mid-tier brands are leading the way in setting up stores. Victoria’s Secret and American Eagle are the latest to announce expansion plans in Asia.

European retailers have expanded extensively in the region, driven largely by luxury brands. Italy ranks second behind the US, accounting for 20% of total retailers present, closely followed by the UK at 14%. Top-tier luxury brands Louis Vuitton, Gucci and Cartier are present in over 80% of the 30 cities examined and have had a long presence in mature markets. While European luxury brands have been fast to expand in the region, several mid-tier brands from Europe such as Spanish fast fashion brands Zara and Mango have also set up broad store networks that cover most markets.

Although the expansion plans of major western brands capture most headlines, Asia Pacific brands are also taking advantage of the region’s strong growth prospects to expand domestically and regionally. Among the brands leading the way is Japanese fast fashion brand Uniqlo, which has announced plans to open 400 stores globally in the next few years and more ambitiously its parent company Fast Retailing is targeting to become the largest apparel retailer globally by 2020. Other Asian Pacific brands broadening their footprint include Charles & Keith (Singapore), Cotton On and Oroton (Australia), Muji and FamilyMart (Japan), and Samsung and The Face Shop (South Korea).

Retailers from around the world coming to Asia PacificRetailer country of origin ranking

1Rank

2

3

Mid-tier

United StatesUnited States

LuxuryTotal

Italy

Italy France

Spain

United Kingdom

United Kingdom United Kingdom


City Profiles

20 | JLL

Hong Kong’s dynamic retail market, compactness and highly efficient infrastructure network draws high-spending locals and visitors, particularly from Mainland China. Strong market fundamentals continue to attract leading brands that inevitably look to open flagship stores and use the city as an entry point into China. Key shopping areas include Pacific Place, Harbour City, Times Square, The Landmark and ifc malls, plus the coveted street-front stores along Queen’s Road Central, in Central and Canton Road in Tsimshatsui. Causeway Bay, where the most expensive high street location in Asia is found, has welcomed tenants with new standalone stores such as Ugg, Eslite Bookstore, Oroton and Pretty Ballerinas. New entrants in Hong Kong include J. Crew, Philipp Plein, Volcom, Victoria’s Secret, Superga, American Apparel and Intimissimi.

RANK 1Hong Kong

ShanghaiRANK 2

Shanghai is considered to be the economic centre of China. A diverse economy and deep consumer base makes it a favourite among international brands as a place to test the China market and gain brand exposure. Anchored by Plaza 66, CITIC Square and Westgate Mall, West Nanjing Road is the most high profile location in the city, while Lujiazui now follows as the next high profile location with the landmark ifc mall. Huaihai Road is popular with flagship stores and has also recently undergone significant upgrades to become Shanghai’s third major luxury brand destination. With the city’s rapid expansion into surrounding areas, new submarkets catering to the mass market have appeared along metro lines leading out of the city to serve the needs of local residents. Recent new entrants include TGI Friday’s, Monki, Tory Burch, Neil Barrett and Breitling.


BeijingRANK 4

Beijing is the political and cultural centre of China. Although demand from luxury brands was modest over the past year, mid-market retailers continued to expand. As the fashion centre of Northern China and with a growing middle class, Beijing is a highly attractive target for international brands to open flagship stores. Wangfujing and Xidan are the two most famous traditional shopping areas, featuring landmark projects including Oriental Plaza, Beijing APM, Joy City and Galleries Lafayette. The CBD and Third Embassy submarkets have become high-end fashion spots thanks to the large concentration of multinational companies and white collar workers. Destinations in these areas include Shin-kong Place, one of the most successful up-market shopping destinations in China, as well as China World Mall and Taikoo Li. Over the past year, many international retailers, including Jil Sander, Karl Lagerfeld, Tom Ford, Paul Smith and Tadashi Shoji have opened their first Mainland China stores in Beijing.

RANK 3

Singapore

Singapore has established itself as a strategic location for international retailers looking to increase brand awareness in Asia Pacific, in particular Southeast Asia. Strong domestic purchasing power plus a magnetic appeal as a tourist destination combine to create a comparatively mature retail market. Top of the shopping list for locals and tourists is Orchard Road, an iconic strip of designer boutiques and malls, but increasingly decentralised areas are gaining lustre with the completion of new shopping centres. Recent notable brands making their first forays onto the Singapore retail scene include Kate Spade Saturday, Krispy Kreme and Tom Ford, which opened at ION Orchard, Tangs shopping centre and Marina Bay Sands respectively.

22 | JLL

SeoulRANK 6

Seoul is renowned for its sophisticated and image-conscious consumers, and is a gateway to other Korean cities. The expansion of new-to-market brands and an influx of tourists, most notably from Mainland China, are driving retail demand. Key shopping areas are the core districts of Myeongdong and Gangnam Station, trendy Garuso-gil and Hongdae as well as the high-end Cheongdam precinct. Large scale retail developments include Seoul IFC Mall, Times Square, the under renovation COEX Mall and the soon-to-complete Lotte World Mall. In recent years international brands have increasingly broken away from department stores to establish standalone high street shops. Recent market additions include Abercrombie & Fitch and Joe Fresh. Cos, Point and Gu have all announced plans to establish their first stores in 2014.

TokyoRANK 5

Tokyo is a world-renowned shopping city, attracting consumers with numerous luxury brand boutiques, department stores and malls. Main shopping destinations include Ginza, Omotesando, Shibuya and Shinjuku, collectively forming one of the largest retail concentrations in Asia Pacific. With a large high-income population and mature retail market, many international brands, in particular top luxury brands, have had a long established presence in the city. Recently some international brands have shifted away from distributing products via domestic retailers to directly operated standalone stores. An improving economic environment and rising tourism demand have revived retailer interest in the city, with a number of retailers opening flagship stores including Burberry, Balenciaga and Kate Spade. Notable new retailers coming into Tokyo include Transit Par Such and Diptyque in Aoyama, and Flying Tiger Copenhagen in Omotesando. Guess also recently re-entered the city with the opening of a store in the Harajuku district.


HangzhouRANK 17

BangkokRANK 10

Bangkok is fast becoming a destination of choice for global retailers, attracted by a combination of rising income levels and increasing international tourism. Between 2010 and 2013, the number of international tourist arrivals increased by 63%, reaching 17 million in 2013. The Ratchaprasong “Golden Mile” is the heart of Bangkok’s retail market. The eleven centres comprising more than 462,000 sqm of lettable space along Rama I Road attract hundreds of thousands of shoppers on an average day. However, new centres outside the Golden Mile such as Central Embassy and EmQuartier, the former slated to open in late 2014, are also providing lucrative opportunities for retailers. Recent new entrants into the market include H&M, Zara Home, Pull & Bear, Victoria’s Secret and Harrod’s Tea Room.

Hangzhou is known as a major tourist destination and as a wealthy coastal city with a strong private sector and an entrepreneurial driven economy. It is home to leaders in the high tech sector such as Alibaba. The city has one of the highest concentrations of luxury brands outside of Tier 1 markets, thanks to its high wealth per capita. The most high profile retail submarkets are Wulin and Hubin, featuring landmark properties such as the Hangzhou Tower complex and InTime Hubin Phase I. Qianjiang New City, Hangzhou’s “new CBD” area, is home to China Resources’ MixC, one of the first successful high-end shopping centres in the city. Notable new international retailers to enter the market include Hollister, Sam’s Club and Miss Patina.

24 | JLL

MumbaiRANK 25

Mumbai is known as India’s financial and commercial hub, and is also the nation’s capital of fashion. Brand awareness among consumers is growing, encouraging more international retailers and luxury and fashion brands to tap into India’s edgiest retail market. However, regulatory uncertainty surrounding retailing for foreign companies has impacted the entry of new brands. Mall shopping is a popular concept, and key shopping centres such as Palladium at High Street Phoenix, Atria, Inorbit and Oberoi Mall offer a refined mix of retail, dining and entertainment. In the past year, new retailers to come into the market include Forever 21 and Thomas Pink.

SydneyRANK 20

Sydney’s varied portfolio of smart malls, department stores, designer brands and revamped heritage shopping centres befit its status as a high-profile international city. As such, Sydney boasts a range of luxury retail boutiques, from the traditional Castlereagh Street/King Street precinct, to the recently redeveloped Westfield Sydney. Pitt Street Mall acts as the heart of CBD retailing for workers and tourists, while Oxford Street, The Rocks and Darling Harbour are more popular with visitors. In spite of a high average household disposable income level, many international retailers have only recently begun to enter the Australian market. The latest wave of retailers is being supported by a rise in available prime space, global expansion of retailers and the globalisation of shopping centre ownership. Notable new entrants into the market include H&M, Tod’s and Brooks Brothers, while Rolex opened its first Australian flagship store at Martin Place in the CBD.


Rental Analysis

26 | JLL

ManilaBangkok

JakartaBangalore

Kuala LumpurDelhi

MumbaiAucklandAdelaide

PerthOsakaBeijing

SingaporeShanghai

GuangzhouBrisbane

Melbourne

SydneySeoul

TokyoHong Kong

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000Net Face Rents (USD per sqm per annum)

7,1497,115

6,4375,685

5,4985,064

4,9834,688

3,5993,222

3,0082,772

1,8651,4461,398

1,163981

667664

481

14,634

Greater ChinaNorth AsiaSoutheast AsiaAustralia / New ZealandIndia

Retailers continue to seek quality space across Asia Pacific but availability remains limited in most markets. The most expensive locations in the region can achieve rents in excess of three or four times that of average rentals in prime areas. A higher level of sales activity and increased brand exposure are core reasons top retailers continue to pursue these locations. Rental disparities are also evident between cities, with space constrained Hong Kong commanding the highest shopping centre rents (USD 14,634 psm pa) at more than double the next most costly city Tokyo (USD 7,149 psm pa). Sydney, Seoul and Melbourne round out the top five locations for highest rents, where rents are in the range of USD 5,700-7,100 psm pa for the best locations. At the other end of the spectrum, rents in India and Southeast Asia are generally the most affordable, with average levels less than one-tenth of Hong Kong.

In our analysis, we observe that there is generally a link between both retailer presence and the size of the consumer spending market with prime rents. As retailer presence rises and the consumer spending market reaches a certain scale, retailers appear more willing to pay higher rents for prime space. This result is not unexpected, as a bigger market size would provide more opportunities for retailers and thus entice them to set up operations. If we look at the most expensive locations in Asia Pacific, major cities in Greater China and North Asia have both a high level of retailer presence and large consumer market sizes. Australia is somewhat of an outlier, with its high rental levels due more to a limited supply and low vacancy levels of centrally located prime shopping centres.

Hong Kong has the most expensive rentals in Asia PacificAsia Pacific Shopping Centre Rents, 1Q14

Note: See appendix for definition of rentsSource: JLL Research


The rapid development of e-commerce has garnered attention worldwide as documented in JLL’s Redefining Retail Places. Asia Pacific is no exception as rising income levels and new technology have put internet accessible devices such as mobile phones and tablets into the reach of millions of consumers in the region. Despite a general upward trend in technology adoption rates, the advancement of e-commerce varies significantly across the region with the largest and most developed being in China, followed by Japan and South Korea.

Undoubtedly the online retail landscape will continue to grow and evolve, thus providing not only challenges but also opportunities for retailers with brick-and-mortar shops. However, it will be increasingly necessary for retailers to create an online presence to raise brand awareness and to provide value-add services in order to remain competitive – for example, integrating a

e-commerce – increasing impact across Asia Pacific

virtual and brick-and-mortar presence such as with “reverse showrooming” to help drive sales in-store. This approach encourages customers to go online to do research but to head to a store to complete a purchase. “In-store” apps are also rising in popularity and look to tap into the growth of smartphone usage. Offering the ability to scan bar codes for prices, read product reviews or even offer discounts can all improve the in-store shopping experience. These are just some of the many options available for retailers to enhance the buying environment.

From the perspective of mall operators, in markets such as China where online sales are growing rapidly it is essential to re-orient tenant mixes and mall design around more services based businesses that will continue to support the attractiveness of the mall experience.

28 | JLL

Chinese tourists influencing retail markets across Asia Pacific

Source: Various government websites

Visitor arrivals from China, 2013

Regional tourism is supporting retail demand in many markets as sound economic fundamentals, improved transportation infrastructure, cheaper travel and relaxed visa restrictions are leading to a rise in people going abroad. China, in particular, has witnessed strong growth with the country becoming the world’s largest source for international visitors (97 million in 2013) and the highest spender on tourism abroad (USD 129 billion in 2013) according to the UN World Tourism Organization. Hong Kong and Macau are the top destinations for Chinese travellers. However, other countries in the region are also benefiting with China being the top source market for Thailand, South Korea, Taiwan and Vietnam.

With such a large number of Chinese going abroad, their tastes and needs are having an impact on local retail markets and influencing retailer strategies. We are increasingly seeing businesses tailoring service offerings, from accepting payment via UnionPay (China’s only card issuing organisation) to top luxury brands providing services in Mandarin. Since being

founded in 2002, UnionPay has become the world’s largest bank card by number of cards in circulation and in the first half of 2013, the value of transactions processed via its cards (USD 2.5 trillion) was second only to Visa according to Nilson (2014).

Variation in prices for goods, in particular luxury items, between China and many travel destinations is partly contributing to a high level of expenditures by Chinese tourists. Import tariffs and consumption taxes which can double the prices of some luxury goods in China often justifies the time and expense to go abroad to make purchases. Hong Kong is a prime beneficiary of this situation with Mainland Chinese consumers accounting for an estimated USD 22 billion or one-third of all retail spending in the city in 2013. Hong Kong’s low tax environment makes products more affordable and its close proximity allows for ease in travel. While the impact of Chinese spenders in other markets is not as large, it is not insignificant with Chinese tourists spending more than AUD 4.8 billion in Australia and nearly SGD 3 billion in Singapore in 2013.

Thailand 4.7m

Hong Kong 40.8m

Taiwan 2.9m

Singapore 2.3m

Vietnam 1.9m

Malaysia 1.8m

Japan 1.3m

Australia 0.7m

Indonesia 0.8m

New Zealand 0.2mIndia 0.2m

South Korea 4.3m


Conclusion

Looking ahead we will continue to see the entrance and expansion of international brands into the Asia Pacific market as retailers look to new areas for growth. Despite high rental rates and limited availability, prime locations in major urban areas will continue to be sought after by major retailers, but decentralised locations in select cities are likely to present opportunities. Major Tier 1 markets will continue to be the focus of brands looking to enter the region, while more established brands increasingly look to peripheral areas or Tier 2/3 markets for growth.

By retailer segment, mid-tier brands are likely to see higher growth in the retail networks while luxury brands focus on core markets. Tourism will continue to be a key demand driver in many markets as rising income levels and ease in travel improve, allowing more consumers to go abroad. However, one overarching theme for all retailers is that they are likely be more selective or methodical about new store openings and will also place a greater importance on creating an online presence.

Asia Pacific’s huge population, rapid economic growth and rising wealth levels will surely act as a magnet for international retailers in the years ahead.

30 | JLL

Appendix

Methodology

• A retailer is deemed to be present in a city if it has at least one store (dedicated shop). We have generally excluded branded shops located within department/multi-brand stores that do not have a dedicated shop area. However, in select markets such as Japan and South Korea, department stores are a prominent retail format and major retailers often exert significant control over these operations so we have opted to include such shops for these markets.

• Geographically, city data refers to the entire metropolitan area, which does not necessarily correspond to the administrative boundary of a city (e.g. the Greater Tokyo area include cities such as Yokohama, Osaka includes surrounding cities such as Kobe).

• Rents are for prime level locations in the best prime shopping centres (except high street for Tokyo, Osaka and Seoul) and on a net lettable area basis. Net face rents are calculated excluding the tenant outgoing costs and landlord incentives are not taken into account.

• Retail sales – Historical growth of retail sales values at a city-level are from Oxford Economics. The actual level of retail sales is not directly comparable across cities/countries as there is no international standard definition for “sales” or ”turnover”, and the price of the transactions incorporated in the sales/ turnover can vary from market to market, owing to the inclusion or exclusion of value added and other taxes, etc. (growth rate more comparable).

Sources

Altagamma (May 2014), “Altagamma Observatory – May 2014 Update”.

Bain & Company (October 2013), “2013 Luxury Goods Worldwide Market Study (12th Edition)”.

JLL (2013), “Destination Europe 2013”.

JLL (2014), “Redefining Retail Places”.

Oxford Economics (2014).

The Brookings Institute (July 2012), “Brookings Development, Aid and Governance Indicators: Raw Data”.

The Nilson Report (2014), “As quoted in the Reuters news article: Coming to a store near you: UnionPay, the world’s biggest bankcard (March 2014)”.

Tourism Australia (May 2014), “China Market Profile”.

Singapore Tourism Board (May 2014), “Tourism Sector Performance: Q4 2013 Report”.

United Nations World Tourism Organization (January 2014), “World Tourism Barometer”.

United Nations (June 2013), “World Population Prospects: The 2012 Revision”.

WealthInsight (March 2014), “Worldwide migration of HNWIs over the past decade, 2003-2013”.


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