Beacons of the Industry
While the retail sector is a global entity, there are some locations and cities that burn just a little brighter and are more attractive to shoppers and brands as they look to expand on the world stage. Join us over the next six pages as RLI takes a closer look at a selection of key retail markets.
Dubai
Dubai is the shopping centre of the world. This is according to ‘Passport to the Middle East: Why retailers are choosing Dubai for international expansion’ report by The Retail Summit in partnership with Euromonitor International. They explain that it is one of the most diversified economies of the GCC and that Dubai relies heavily on tourism and travel retail. Dubai is a launch pad for regional expansion and most of the world’s major brands have a presence. Dubai is ranked number one in overall international retailer presence, with over 62 per cent of the world’s brands with some sort of footprint. Unlike other major Middle Eastern cities, where the retail landscape is anchored to traditional souqs, Dubai is not stymied by the past. Here there is a real readiness for change which makes Dubai fertile ground for all that is cutting-edge. International brands continue to dominate in the United Arab Emirates and consumers here are very brand conscious. Meanwhile, Majid Al Futtaim, the leading shopping mall, communities, retail and leisure pioneer across the Middle East, Africa and Asia, recently released its ‘State of the UAE Retail Economy’ Q4 report, which revealed that overall consumer spending was up 19 per cent in 2022 compared to the previous year. There was a notable 13 per cent growth in spending across the retail economy for the full year including, leisure and entertainment (29 per cent), fashion (25 per cent), hypermarkets and supermarkets (11 per cent) and general retail (nine per cent). This increase was driven by the rise in international visitors to the UAE, which more than doubled to 14 million in 2022, bolstered by major events including the FIFA World Cup in neighbouring Qatar.
Hong Kong
Officially known as the Hong Kong Special Administrative Region of the People’s Republic of China, Hong Kong is a city and special administrative region of China that is home to 7.4 million residents of various nationalities in a 1,104sq km territory. In Cushman & Wakefield’s ‘Hong Kong Office and Retail Leasing Markets Q1 2023’ report by Rosanna Tang, it says that following the full border opening between Hong Kong and the mainland, tourist arrivals show a significant increase. As a result, demand for retail stores has improved and the report says they believe that the first half of the year will see a faster-than-expected rental increase at about three to eight per cent. In the first two months of 2023, total retail sales amounted to HK$69.3bn, recording a significant increase of 17.3 per cent year-on-year, predominately due to the low base recorded in 2022. Landlords are targeting higher asking rentals. However, retailers have remained generally conservative and consequently the market did not witness major brand expansion activity during the quarter. Luxury brands and large chain-stores, in particular, will need some time to understand the changing consumption patterns of mainland visitors, after a long period of tourism hiatus. The gap in expectations between landlords and potential tenants has lengthened lease negotiations, meaning lease activities and rentals were yet to achieve an immediate V-shape rebound in Q1. In addition, after three years of border closure, Hong Kong’s service sector is struggling with labour shortages, which could impede F&B expansion and the city’s tourism rebound. They believe that the first half of this year will be a period of adaptation and exploration for the retail market in Hong Kong.
Istanbul
An article on Lonely Planet.com by Jesse Scott and Didem Tali highlights that thanks to its extraordinary geographical gifts, the transcontinental city of Istanbul has always lured serious traders and shoppers. Visitors can appreciate the strong artisan tradition, browse high-quality local products and even sip complimentary tea from tulip-shaped glasses while discussing what to bring home. Resembling a massive labyrinth and boasting nearly 4,000 shops in 45,000sq m, the Grand Bazaar is one of the world’s oldest covered shopping centres. Istanbul remains a unique city that is positioned on two continents and in the third quarter of 2022, the increase in demand in the retail market drew attention. Cushman & Wakefield’s Turkey – Country Snapshots – Third Quarter – 2022: Office, Retail & Industrial & Logistics continues by saying that another reason for the increasing demand is that the number of foreign visitors after the pandemic almost caught up with the pre-pandemic period. Although increasing costs due to inflation and fluctuating exchange rates continued to affect the sector, significant occupancy rates were observed both in shopping malls and on main streets. In the third quarter of 2022, it was observed that investors continue their growth strategies despite the difficulties in finding empty stores. In addition, it is noteworthy that many Turkish brands that cannot fit into the Turkish market have started to develop growth strategies abroad. In the third quarter of the year, the demand continues to increase with the effect of the pre-pandemic period in the number of foreign visitors. Meanwhile, in the third quarter of the year, there was no new shopping mall entry and the total supply remained stable at 13.8 million square metres.
London
The capital and largest city in England and the UK, it is a world-renowned retail hotspot and a beacon of the industry. One of the world’s most important global cities, it exerts a considerable impact upon the arts, commerce, education, entertainment, fashion, finance, healthcare, media, professional services, research and development, tourism and transportation. For decades London has led the way in terms of innovation, fashion and retail trends and it is the focal location for new retailers seeking representation in the UK. CBRE’s ‘Central London Retail Market Summary – Q1 2023’ explains that, reflecting the wider trends seen across real estate, Central London retail investment volumes were muted in Q1 2023, at £183M. However, in prime locations, yields have remained stable due to strong occupational demand and the prospect of rental growth. Meanwhile a report from Savills entitled ‘Market in Minutes: Central London Retail – Q4 2022 explains that London’s West End is new clearly in recovery mode. In December last year, West End sales were just nine per cent below 2019 levels, according to New West End Company, which is particularly encouraging considering rail strikes during the ordinarily busy run-up to Christmas. This was reflected in trading figures from Shaftesbury, with tenants reporting average turnovers six per cent above 2019 levels over the festive period and up 42 per cent year-on-year. Strong trade in the West End, coupled with an improving economic outlook, is helping to bolster occupier sentiment. In addition, with average prime headline ZA rents in the West End still 16 per cent below pre-Covid levels, combined with a good degree of availability, there is an increasing realisation amongst occupiers that now may be the optimum time to secure new space.
Los Angeles
Los Angeles, the “entertainment capital of the world,” is a globally-recognised travel destination for millions of tourists each year. The city’s influence, however, reaches far beyond the glitz and glamour of Hollywood. According to the ‘Q4 2022 Retail Market Outlet – Los Angeles’ by NAI Capital, LA Country’s retail market post-pandemic recovery moved slowly in Q4 2022. Vacancy, sublease space and slack demand for retail space confronted landlords contending with a changing economy. While vacated space that was hastily put on the market during the pandemic shutdown is getting occupied as retailers pivot back to brick-and-mortar. A magazine by DCBID entitled ‘DTLA Retail Report: A Guide to the Future of Retail in Downtown Los Angeles’ explains that the retail industry has been evolving over the last decade – and so has Downtown Los Angeles. During the pandemic, retail’s shifts accelerated dramatically. With the inexorable rise of e-commerce, the role of physical stores is increasingly about branding, experience, convenience and personal service. Downtown has 743 retail businesses per square mile – and 157 food and beverage businesses, making it one of the most dynamic and exciting urban centres in the US. The city is home to signature locations, boutiques, local flair, new retail, fine-dining and local-dining experiences and familiar favourites. The CBRE report ‘Los Angeles Retail Figures Q3 2022’ explains that freestanding sites continued to drive capital markers activity, closely followed by storefront locations. Sites with higher parking ratios and excess land were targeted and included auto-dealerships, supermarkets, health clubs and fast-food restaurants. The report also states that, although port activity has de-congested relative to H1 2022, retail development remains constrained and has grown increasingly more complex with the rise in interest rates and construction costs.
Milan
A highly-regarded reference point when it comes to European culture, Milan has long been considered Italy’s most modern city – a place that combines the best of the country’s renowned culture with a thriving business and finance centre and a distinctive cosmopolitan edge. This is highlighted in Knight Frank’s Europa Cities Guide 2022 – Milan. It continues by saying that despite being smaller than many other major European cities, Milan, in recent years, has managed to redevelop large urban areas and has become one of the most prominent cities in Europe from a real estate and retail perspective. Milan offers a high quality of life for its residents, with internationally recognised flagship events and exhibitions held throughout the year. Tourism underpins the city’s economy, while the student dynamic of the city remains core to the residential sector. In 2026, Milan will host the Winter Olympic Games, an event that boosts its international appeal further. Cushman & Wakefield’s ‘Italian Market: Focus on Retail 2022’ report highlights that Milan is a leading global city, with strengths in the arts, commerce, design, education, entertainment, fashion, finance, healthcare, media, services, research and tourism. Although the city centre has a long-established tradition of retailing, in recent years the city has undergone an important reshaping thanks to the redevelopment of areas such as Porta Nuova and CityLife, becoming new shopping realities attracting dynamic brands. Milan is also the province with the largest out-of-town retail offer of the region of Lombardy, with 1.2 million square metres across 49 schemes and over 2,500 shops. The retail density stands at almost 390sq m per 1,000 inhabitants, above the national average (about 270sq m per 1,000 inhabitants).
New York
New York City is one of the world’s premier shopping destinations, topping “best of” lists and drawing visitors from across the globe. The retail sector is a vital part of the city’s economic and social landscape, with businesses ranging from corner grocery stores to renowned department stores in locations across the city. The Covid-19 pandemic has affected the retail trade sector unevenly, with online retailers and some essential businesses experiencing growth and other large retail segments seeing falling revenues. CBRE’s ‘Retail Markets in Focus: New York City’ explains that New York’s retail sector has faced significant challenges over the past few years, including high pre-COVID rents that increased operating costs, a population that migrated to suburban locales during the pandemic and the emergence of hybrid work, which reduced in-office attendance. However, an educated population, abundant mass transit and renowned high-street districts that attract local, regional and international visitors set the stage for a recovery. According to Cushman & Wakefield’s Q1 2023 Manhattan Retail Report, New York City’s economy is showing a sign of improvement as tourism in the city continues to rebound and it is now on track to grow to 63.3 million in 2023 and surpass 2019 numbers by 2024. Manhattan retail leasing continued its positive trajectory into the first quarter of 2023. Available retail space declined or held steady in nine out of 11 tracked submarkets on both a quarterly and annual basis, with select submarkets at historic lows since the 2015 and 2016 troughs. The largest lease of the first three months of 2023 was a five-year deal for LVMH at 6 East 57th Street near Upper Fifth Avenue, where LVMH will take over the former Niketown space.
Paris
Where to begin with Paris, it’s a city that everyone feels they know something about, romanticised and idolised as the backdrop to countless advertising campaigns, films and books. According to Knight Frank’s ‘Europa Cities Guide 2022 – Paris’, this is hardly surprising given that Paris is often regarded as the capital of the arts, also popularly referred to as the ‘City of Light’. Universally recognised as one of the world’s most beautiful cities and centres of high culture; fashion, cuisine, art and cinema are tightly woven into the historical fabric of Paris. Despite its rich history, Paris is a city that never fails to look to the future and is considered one of the most diverse cities in Europe. Although sprawling, it has a distinctive village-like culture within its 20 arrondissements, with many Parisians tending to shop and socialise locally within their quartiers – the further division within each arrondissement. Knight Frank’s French Property Markets – 2022 Review & 2023 Outlook: Investment, Office & Retail highlights that in 2022, the Paris retail market benefited from the continued recovery in international tourism. With 86.7 million arrivals at Paris airports, 80 per cent of which were foreign passengers, traffic is up 107 per cent compared to 2021 and is gradually approaching the 2019 level. In addition, the report highlights that 38 luxury shop openings were identified in Paris for 2022, five more than in 2021 and nine more than in 2020. Iconic projects have also been opened, such as Cartier at 13 rue de la Paix. This trend will continue in 2023 and 2024, with the expected openings of Saint Laurent on avenue des Champs-Élysées and avenue Montaigne.
Riyadh
Knight Frank’s report entitled ‘Saudi Arabia Commercial Market Review: Summer 2022’ highlights that in Riyadh the fortunes of the retail sector are on the cusp of reversing. The Ministry of Investment issued 2,056 foreign investment licenses in the final quarter of 2021. 44 per cent (907) of these were linked to the retail and e-commerce sectors. They have noted a steady stream of requirements from international retailers looking to enter the Kingdom, particularly Riyadh, putting upward pressure on rents. Malls are the primary target for these new entrants and regional and super-regional mall lease rates are beginning to creep up as new requirements gather pace. On average, larger malls (SAR 2,716 per square metre) have seen rents increase by one per cent over the last 12 months. Vision 2030 is changing the Kingdom’s retail landscape dramatically. With 56 per cent of Saudi’s population below the age of 35, the country has a young and dynamic demographic. They have been exposed to international brands and fashion labels, restaurant experiences and edutainment overseas. And as these international retailers arrive in their droves, they are being readily welcomed and absorbed into the retail fabric. Indeed, in Riyadh alone, 290,000sq m of restaurant-led retail developments, including 275 new restaurants, spread across 16 lifestyle retail developments, have been completed since the launch of the National Transformation Plan in 2016, ushering in a thriving food scene in the capital. In addition, the report explains that they expect the hospitality sector to continue to recover over the medium term as Riyadh remains a focal point for tourism and business growth, supported by governmental infrastructure and tourism investments in line with Vision 2030.
Singapore
Singapore, officially the Republic of Singapore, is an island country and city-state in maritime Southeast Asia whose retail market size was valued as high as SGD44.5bn in 2021 and is expected to achieve a CAGR of more than three per cent during 2021-2026. Research from Knight Frank in their report ‘Singapore Retail Market Update – Q1 2023’ explains that there has been an upturn in prime retail rent as the tourism sector recovers. More borders in Asia have reopened and Singapore welcomed visitors from previously closed countries. According to the Singapore Tourism Board (STB), Singapore welcomed more than 2.9 million visitors in the first quarter of 2023. Although about only two-thirds the pre-pandemic 4.7 million arrivals in Q1 2019, the average duration of visitor stays lengthened from an average of 3.34 days in 2019 to 3.97 days in the early days of 2023. Since April 2022 when Covid-19 restrictions in Singapore were broadly lifted, many local brands flourished, expanding both locally and globally as pandemic pressures eased. While Singapore’s retail sector strengthens, the gravitation towards experiential retail and lifestyle continues with increasing popularity for health, beauty and wellness services. Such concepts have been steadily growing with people becoming more accepting of alternative and holistic therapies such as Traditional Chinese Medicine (TCM), meditation and preventive health. This is also aligned with wider discussions for Singapore to be fashioned as an urban wellness hub as part of its tourism offerings. Notwithstanding the upward revision of the Goods and Services Tax (GST), inflation and economic uncertainty, the retail sector is expected to continue to recover and improve as air travel and visitor arrivals edge toward pre-pandemic levels.
Sydney
Sydney is the state capital of New South Wales and the most populous city in Australia and Oceania. Located on Australia’s east coast, the metropolis surrounds the world’s largest natural harbour and sprawls towards the Blue Mountains to the west. JLL’s ‘Australia National Retail Market Overview: National, Adelaide, Canberra, Melbourne, Perth, South East Queensland, Sydney’ highlights that in 2022, retailer demand continued to differ by category. Demand from discretionary retailers, particular mid-market fashion retailers, remained generally muted from uncertainty surrounding future trade conditions as consumers begin to cut back on discretionary spending amid rising interest rates. While significant interest was shown throughout all retail sub sectors by F&B category retailers and in particular quick service restaurants. Evidence is emerging of weakening retailer sentiment with vacancy rates in most sub sectors increasing in Q2 2022. This suggests some retailers beginning to reintroduce store nationalisation plans which were put on hold given strong sales and rebasing on rents in 2021. Sydney recorded low supply in Q2 2022 with only 19,000sq m of retail space reaching completion, bringing the first half 2022 total to only 34,700sq m. Following a record year of transactions in 2021, investor appetite in the first half of 2022 was subdued. Investment volumes in 2Q22 totalled AUD 518M, bringing the half yearly total to AUD 1.1bn. In Q2 2022, transaction activity was primarily concentrated in neighbourhood and large format retail assets. The neighbourhood and large format retail sub sectors accounted for 85 per cent of sales volumes, split evenly between the two sub sectors. The remainder of the sales in 2Q22 were split between ‘other’ retail accounting for eight per cent and two CBD assets accounting for seven per cent.
Tokyo
Born of commerce and complexity, Tokyo is the very definition of a metropolis. Twenty-three wards, 39 municipalities and 13.6 million people join to form Japan’s capital. Include the three surrounding prefectures of Kanagawa, Saitama and Chiba and you have a population base that exceeds 36 million people. In the department store sector, sales increased 38 per cent year-on-year in August, the 12th consecutive month of increase. Luxury goods continued to record strong sales, outperforming 2019 levels since March. This reflected strong domestic consumption as the number of foreign visitor arrivals continued to be constrained due to immigration restrictions, according to JLL’s ‘Japan Research – Tokyo Retail Market Summary – Q3 2022’ article. It goes onto say to Oxford Economics, as of September 2022, private consumption was revised upwards to grow 2.9 per cent in 2022 and one per cent in 2023. Private consumption is expected to hold firm. Risks include the impact of inflation on operation costs and disposable income. On the back of healthy sales supported by domestic consumption, as well as the return of foreign visitor arrivals as immigration restrictions ease, demand from various retailers is expected to remain resilient and underpin rent growth for the foreseeable future. Meanwhile, CBRE’s ‘Japan Retail MarketView Q4 2022’ explains that the high street vacancy rate for Q4 2022 fell by 0.1 points quarter-on-quarter to 7.6 per cent as an available property that had been attracting interest since the previous quarter secured a tenant. Ginza high street rents rose by 3.8 per cent quarter-on-quarter to JPY 250,700 per tsubo per month. This rise was primarily a result of multiple luxury brands expressing a willingness to pay above-market rates for the opportunity to open stores in prime high street locations.
