Retail

Consumer sentiment to remain lukewarm amid softer economic growth

Consumer optimism across Asia Pacific is expected to ease this year amid the weaker economic outlook. Growth in discretionary spending is forecasted to moderate, leading to slower sales growth across major retail categories in 2024. 

Prevailing high interest rates and the rising cost of living will compel consumers to trade down to lower-price brands; a trend already becoming prominent in Hong Kong SAR. Mainland China will see below-trend growth in retail sales this year as the sluggish job market and troubled housing sector weighs on spending.

While the recovery in regional tourist arrivals will continue, the long-awaited return of large numbers of mainland Chinese tourists remains elusive. Mainland Chinese visitor arrivals in major Asia Pacific markets in 2023 were just 30% of 2019 levels. The lack of visitors aside, the positive impact on retail sales has been limited since many mainland Chinese tourists now prefer cultural rather than pure shopping trips. CBRE has therefore adopted a more cautious outlook for retail sales in Hong Kong SAR due to the city’s substantial exposure to tourists from this market.

In contrast, Japan’s retail market will continue to benefit from the strong flow of inbound tourists. Preliminary statistics from the Japan Tourism Agency indicate that total tourist spending reached a record high last year. Given that annual tourist arrivals to Japan in 2023 were still 25% below 2019 levels, sales of tourist-centric trades are poised to grow further in 2024.

Figure 10: Global forecast revenue growth among key retail trades

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Expansionary demand to focus on high quality retail space

CBRE’s December 2023 Asia Pacific Leasing Sentiment Index indicated that retail expansionary sentiment remains high. Despite retaining a cautious approach to CapEx and store network planning, retailers are poised to capitalise on favourable market conditions to upgrade and expand in 2024. However, large scale expansion will remain limited as retailers prioritise consolidating resources and focusing on the most profitable locations.

F&B will remain the most active sector, driven by coffee shops and casual dining restaurants. Overseas expansion from mainland Chinese F&B brands will be a key trend.  

Demand in the luxury sector will continue to be led by top performing brands. Luxury brands will focus on enhancing customer experience and brand image by setting up large boutiques as well as exclusive salons for key clients. Other active trades will include fashion and beauty-related retailers.  

Expansionary demand across all categories will be highly focused on prime retail space in city centres, leading to a further compression in vacancy. Apart from Tokyo, absorption of secondary space will lag as the flight-to-quality mindset deters retailers from settling for secondary options. Amid the emphasis on securing high quality space, retailers will perform more rigorous due diligence; a trend that will lengthen the time required to conclude lease negotiations.

This year will see an increasing number of retailers exploring alternative space options such as up-and-coming neighbourhoods and heritage buildings as they look to differentiate themselves from the competition. Seongsu-dong in Seoul has seen an influx of retailers drive up rents for pop-up stores by 100% over the past few years. Other popular options will include shophouses in Singapore and renovated historic buildings and retail parks in mainland China.

Figure 11: Retail leasing sentiment in Asia Pacific	Figure 12: Where do retailers intend to expand in 2024?
Source: Asia Pacific Leasing Sentiment Index, CBRE Research, December 2023.	Remarks: Multiple options allowed. Source: Asia Pacific Leasing Sentiment Index, CBRE Research, December 2023.

Figure 11: Retail leasing sentiment in Asia Pacific Source: Asia Pacific Leasing Sentiment Index, CBRE Research, December 2023. (Click to enlarge)

Figure 12: Where do retailers intend to expand in 2024? Remarks: Multiple options allowed. Source: Asia Pacific Leasing Sentiment Index, CBRE Research, December 2023.

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Rents to witness slow and steady recovery

CBRE holds a cautiously optimistic outlook for Asia Pacific retail rents in 2024. Most Asia Pacific retail markets will register rental growth over the course of the year, although the magnitude of any such increments will be modest. Growth will be confined to a handful of high-profile assets, with prime core retail properties set to continue to outperform on the back of solid leasing demand.

Rents in mainland China will bottom out along with the gradual recovery of domestic consumption. With landlords prioritising occupancy and tenant mix management, fit-out subsidies will become more commonplace. As rental growth is projected to be muted, some landlords may opt to increase management or promotion fees.  

Rental growth in Vietnam will remain strong, with Ho Chi Minh City’s CBD set to overtake Hanoi’s as the growth leader as new entrants in the luxury brand segment push up rents in the limited number of prime assets.  

Asia Pacific’s three gateway cities – Hong Kong SAR, Tokyo and Singapore – will experience slower rental growth this year. Leasing sentiment in Hong Kong SAR will remain constrained by the sluggish economy and structural change in mainland Chinese tourists’ spending habits. Rental growth in Tokyo (Ginza) and Singapore will moderate as domestic demand slows and the impact of the recent tourism boom gradually subsides.

Population growth and solid upgrading demand for prime assets will continue to drive rental growth in Australia’s CBDs. However, Melbourne will lag due to the ongoing reconstruction of a major retail precinct as well as the slow return-to-office rate. 

Accelerating flight-to-quality demand will intensify the polarisation in performance and attractiveness of retail assets. Landlords are therefore advised to pay closer attention to the positioning and ambiance of individual properties.

Figure 13: 2023E – 2024F Asia Pacific retail rental forecast

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