Retail revival driven by borderless global trade

Competition to take better space spreads in Korean commercial real estate market


The retail world is becoming a borderless global marketplace. Mature retail and gateway cities serve as the foundation, while emerging markets are the primary drivers of growth. There is a tremendous opportunity for increases in personal spending among the fast-growing middle class in emerging markets, and it’s creating a new population of shoppers.

The prospects for economic growth in emerging markets ― where GDP growth is forecast to increase at a rate of 6.3 percent in 2012, compared to 2.1 percent GDP growth forecasted for mature economies ― will drive the expansion of the middle class and increase private consumption. Per-capita income for emerging markets is expected to increase significantly between now and 2020, with a projected 200 percent increase for India and 125 percent increase for China, compared to about 20 percent for the U.K. and the U.S.

Similar to the performance of retail in mature and emerging markets, retail sales growth has shown both luxury and discount retailers performing strongly, while middle-market retailers have seen little growth. Emerging markets have shown a huge appetite for luxury goods, and discount retailers have performed well in mature markets, which have seen limited income growth and a shift in spending to needs rather than wants.

Online shopping and e-commerce are also playing a role in emerging markets, where the growing middle class is rapidly adopting new technologies. E-commerce is projected to grow 57.3 percent between 2011 and 2016 in India, as compared to a mature market like the U.S., with expected growth of just 11.2 percent.

Retailers are changing their strategies and operating models, whether it’s embracing the high-tech shoppers by combining in-store experiences with mobile shopping, developing omni-channel marketing campaigns or creating excitement with pop-up stores and social media across the board.

Emerging markets are also attracting attention from investors. Globally, retail investment has recovered since hitting bottom in 2009. While cap rates have remained largely flat for the past several years in Europe and the Americas, rates in emerging Asian markets declined significantly, reflecting the high desirability of the region and the lack of investment properties. Cross-border investment activity has also increased, up 25 percent in 2011.

Retail investment continues to focus on gateway cities like Hong Kong, London, New York City and Tokyo. Similarly, gateway cities are commanding the highest retail rental rates, but the strongest growth has been in emerging markets. South America led retail rent growth last year in the Americas, and in Europe the strongest rental rate growth was in the emerging markets of Helsinki, Moscow, Tampere, St. Petersburg and Istanbul.

In Korea, competition among established local fashion brands and global SPAs to take better space has been rising in the local retail market. And it is witnessed that this incident will spread not only in Myeong-dong, Gangnam and Garosu-gil areas but other landmark buildings across the nation as well.

For the retail investment sector, interest in retail real estate among institutional investors has been increasing in the country. We recently saw the Korea National Pension Service investing in Noon Square Shopping Mall located in Myeong-dong and more institutional investors are highly likely to consider expanding their portfolio in retail properties in the future.

Globally, retail rents increased from 2010 to 2011. The rate of those increases reflects the overall fortunes of the regional economies. Strong demand in Asia has allowed its overall rental rates to grow at 12.2 percent in 2011. South America saw similar double-digit growth of 10.6 percent from 2010 to 2011, double the rate in North America, which only grew 5.1 percent during the same period. Europe’s rent growth in 2011 was 1.9% reflecting the caution of retailers in the region due to its economic uncertainty.

Gateway cities of New York, Hong Kong, Tokyo, Sydney, Paris and London commanded the highest rental rates. In Europe, the strongest rent growth was in the emerging markets of Helsinki, Moscow, Tampere, St. Petersburg and Istanbul. In the Americas, South America led retail rent growth. Rio de Janeiro’s Garcia D’Avilla, for example, saw rents increase 52.2 percent year-over-year.

Other markets with strong rent growth were Rio de Janeiro’s Visconde de Piraja, Santiago, as well as more mature markets like downtown San Diego and New York’s 5th Avenue in the U.S.

In Asia, not surprisingly, the highest rent growth was found in Beijing at an incredible 109.5 percent followed by Hong Kong at 48.8 percent. Seoul’s Myeong-dong district saw a significant growth of 684,992 won per square meter a month with 11.6 percent increase in rents on the same period of last quarter, while Gangnam Station and Garosu-gil saw increasing growth with rents by 5.3 percent (549,535 won) and 4.4 percent (245,705 won), respectively.

During the coming year, C&W will continue to track the tremendous rent growth in the region’s hottest cities. As we move forward, the question will remain: will the rate of growth in emerging markets around the world be sustained by an expanding middle class, economic recovery and the demand from retailers who are seeking new consumers for their products?

While economic expansion slowed slightly over the past year, C&W sees the global outlook for retail real estate being influenced by both macro trends such as evolving technologies and omnichannel retailing as well as by regional issues such as population growth and legacy financial issues. As a result, C&W expects that property markets will over the long term increasingly reflect the divergent economic fortunes in mature and emerging economies.

By Glenn Rufrano, CEO of Cushman & Wakefield

The author is CEO of Cushman & Wakefield, the world’s largest privately-held commercial real estate services firm based in New York. ― Ed.