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REAL ESTATE: Prime Retail - China in High Demand
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“China is still in high demand,” says Sebastian Skiff, Executive Director of Retail in Asia, who, together with Anthony Buono, CBRE Executive Managing Director of Retail Services in the Americas, recently shared their insights on the current global retail market.
 
Global Retail Market Overview
Economies are steady
The US expansion should continue, although restrained by inevitable fiscal tightening. While these fiscal policies will tighten, the timing and scope are uncertain.  
The Eurozone’s recession will likely deepen with the resurfacing risks of a disruptive sovereign debt crisis.
In Asia, Japan is suffering from a loss of export competitiveness and the reconstruction from the March 2011 earthquake is proceeding slowly.
Despite an export deceleration and no decoupling, emerging markets will continue to enjoy robust growth.
Inflation has moderated worldwide, enabling more central banks to ease monetary policies.  
 
Consumers gain knowledge and confidence
The single greatest driver of this trend is the use of the internet, mobile technology and the “open discussion” of brands by consumers that “pass judgment” on their relevancy, price sensitivity and quality of each experience.  Further, global city centres like Shanghai are seeing a commonality of brand acceptance as consumers travel more, shop more and experience trends from one market and then demand the same experience in their local market.
 
Retailers are on the move  
While the retail sector continues to globalise, with more brands expanding outside of their home markets, Asian retailers are less well travelled in comparison to their European and American counterparts. This is mainly because of the untapped opportunities available in their own region and this is also why so many retailers are coming to Asia and specifically China. 
 
The Americas retail market overview
For the Americas, the markets have reverted to the core, where retailers are seeking prominent/perfect locations for their brands.  These core markets have defaulted into global city centres, like NYC and San Francisco, and then higher density suburban zones like Washington DC, San Diego, Dallas etc.  Markets with these profiles are experiencing higher retail sales, and better rental growth, along with superior occupancy rates.  
 
For US retailers, expansion/cross border markets that are of keen interest are Canada, Mexico, China, South East Asia and Russia.
 
As far as investment in the Americas is concerned, retail capital in the US is bifurcated into two primary segments- core and value added. Investors and lenders are decidedly focused on these types of investment, providing  lower yields on core and potentially higher yields for those assets that have a clear path for re-positioning. But the majority of the retail properties that exist in the US are in the middle of this bifurcation. Therefore, most assets that are available for sale don’t actually trade because there is gap between what buyers will pay and what sellers require. 
 
There have been many retailers opening for the first time in Asia after thet global financial crisis, looking to offer a growing Asian consumer direct access to their stores – notably in this Asian expansion we can see some of the mega global brands such as Gap, Abercrombie & Fitch, Hollister opening. That said, we are also seeing some really unique concepts coming into the market and, whilst not being truly global mega brands, these stores are very popular- such as Smiggle from Australia – an exciting stationery store that CBRE are working within Singapore as their first foray outside of Australia and New Zealand. CBRE are also seeing a tremendous level of interest from two sectors in China; ‘bridge brand’ fashion and ‘creative luxury’. In both cases they represent validation that the Chinese consumer is ready to consider fashion as unique to them, opting for style over conformity. Both categories compliment the already well established luxury and fast fashion choices.
 
Asia retail market overview
Retailers have shifted their focus and amended their strategies to include exploring new markets and new opportunities with the promise of expansion and the execution of expansive cross-border initiatives. With this strategic transition comes an increase of high quality retail space in emerging markets, such as China, Malaysia and Vietnam. These markets are experiencing an influx of retailers which therefore fuels the demand for new developments.
 
China
China continues its rise with a steady flow of retailers entering the market and better landlord projects in the pipeline. While the speed of retailer expansion, especially those in the mass market sector who tend to open several stores in each city, has been stifled by the availability of suitable real estate, the substantial pipeline of development will help retailers to accelerate the rate of portfolio growth across China. 
 
The rapid growth of China’s middle class population is forcing the number of shopping centre developments to increase in order to satisfy the growing consumer demand. With developments expanding into the heavily populated provincial cities, China is topping the charts for development growth and seeing great opportunities for expansion in these large cities. With this, China’s momentum will push forward with more and better shopping centres, replicating the best retail venues now found around the world.
 
It is safe to say that China, and as an extension, Asia as a whole, is really the largest single opportunity for retailers to consider when viewing markets on a global level. That is not to say that it is ‘easy’ to be successful here. After all, it is a fashionable market and fashion can be at times fickle. Comprehensive due diligence on the differences in consumer likes from city to city, potential current and future store locations, sequencing of what to open, where and when, peer brand activity and performance are all key to establishing a strong foothold in the market. That is just the front end,.Alongside of this, getting the operations side in sync is critical – logistics, corporate structure etc.
 
Key trends
As said, the current trend is for a much more defined retail project in first tier cities that are bridging the space between very high end and a more casual general offering. In the provincial capitals there some really well conceived, planned and focused projects that are coming to the market in the next one-two years.
 
Chinese brands opening in international markets
Some Chinese based retail brands, such as Bosideng are opening in London, but it is an inevitable reality that in say two-three years this will be a common story and not just a one off.
 
Retailers continued interest in China
Fundamentally it is still very positive. However, with the strength of the currency, competition for prime locations, general difficulty in adjusting to the business processes and the hefty capital commitments required retailers are all carefully balancing these alongside understanding what the opportunity is. Sales figures, for the first time in many years, have showed signs of maturing in certain sectors and consumers are much savvier now in deciding what they buy, where they buy it and when they buy it.
 
What can Chinese developers learn from global shopping centre developments?
Undoubtedly they can learn a lot. The main lessons to learn are to avoid being overly seduced by pretty pictures of beautiful concepts and designs, rather than spending more time on your due diligence of the market. Ensure that your knowledge is robust in its understanding of the consumer and retailer requirements, then you can add in the great architecture but above all execute your concept well. 

By CBRE
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