APAC retail rents won’t stabilise until 2022

Hong Kong is expected to lead rental growth in the region this year.

Retail sales in most Asia Pacific markets surpassed or returned to pre-pandemic levels in H1 2021 according to CBRE, with pandemic-driven consumption trends favouring daily necessity-driven neighbourhood retail, luxury, and sporting goods and activewear sectors. Their relatively resilient performance has in turn underpinned leasing demand and flight-to-quality relocations.

Regional rents should stabilise in 2022 with rents in daily necessity-driven neighbourhood malls to display greater resilience.

Here’s more from CBRE:

Following the commencement of the economic recovery in late-2020, CBRE’s Leasing Sentiment Surveys have tracked an improvement in expansionary interest from retailers. Leasing demand remains driven by retailers catering to domestic consumption, among which many groups are looking to capitalise on the current downturn to conduct flight-to-quality relocations. Foreign brands are relatively muted due to the absence of international business travel and inability to perform site inspections. 

The pandemic has impacted shopper footfall and preferences, leading to the resilient performance of daily necessity-driven neighbourhood retail, which has benefitted from the remote-working trend. At the other end of the spectrum, demand for prime shopping locations has held firm, backed by luxury brands seeking opportunities to enhance their presence in core retail areas. With well capitalised local retailers acting on improved availability to upgrade their store locations, secondary retail areas have struggled to retain tenants. CBRE therefore expects secondary areas to take longer to fill vacancy.

Weakening rental recovery

CBRE’s forecast of a milder rental correction in 2021 compared to 2020 has largely proven correct. However, following the introduction of measures to contain a new wave of COVID-19 infections in Q2 2021, the rental decline has gained momentum. Most Asia Pacific markets have therefore revised down their full-year rental forecast. 

Outperformers include Hong Kong SAR, the region’s biggest laggard in 2020, which has seen solid expansionary demand from domestic retailers. The city is expected to lead regional rental growth this year, with an increment of around 5% y-o-y expected. With year-end rents projected to be 23.6% lower than at the same time in 2019, retailers will have abundant opportunities to expand. 

Retail performance in Australia is set to diverge due to prolonged lockdowns. Properties in CBD office districts are likely to experience a deeper rental correction amid a decline in shopper footfall and high vacancy, while convenience shopping driven regional centres are expected to see signs of stabilisation. 

CBRE expects regional retail rents to stabilise in 2022. We retain our view that daily necessity-driven neighbourhood malls will be the most resilient, while growth prospects for luxury-oriented prime shopping locations will be limited due to delays to the resumption of international tourism.

2021F ASIA PACIFIC RETAIL RENTAL PERFORMANCE