JLL’s Margaret Caldwell and Kris Cooper: Retail Around the World
- May 16, 2013
Although there will continue to be headwinds throughout much of 2013, there are signs that the United States’ retail property market may soon turn a corner. In the first quarter of 2013, $8.2 billion in of retail properties transacted in the United States, and the retail pipeline remains robust. The sector has tremendous pent up demand for core properties. Interest rates are still incredibly low, and will be low for the foreseeable future compressing cap rates for quality product.
Net absorption easily outstripped new supply during the quarter by nearly one million square meters. The overall vacancy rate continued its gradual decline, falling by another 10 basis points to 6.7 percent in the first quarter, but more promising was evidence of positive rent growth, with rental rates during the first quarter increasing by 0.3 percent quarter-on-quarter. Although marginally down year-on-year, there is now more confidence that rents have stopped losing ground and could begin to gain further positive traction later in 2013. In fact, JLL predicts in its Spring Retail Forecast that the majority of markets will see a moderate rental increase in retail by year end.
Among U.S. shopping center types, malls continue to see the tightest overall market conditions, with total vacancy of 5.9 percent. Several markets, such as Miami, New York, Houston, Dallas, Fort Lauderdale and San Francisco, continue to stand out for their rental and occupancy outperformance due to strong demographics and/or superior supply constraints.
In 2013, retailer demand for space is likely to remain relatively robust in the majority of locations, and most are expected to see a further, though moderate, upswing in rents. Vacancy rates have been generally stable across the monitored markets in Asia. Most new developments have achieved good occupancy rates, although lower occupancy rates in suburban malls in Shanghai and Singapore are evident. Rental growth has been strongest in Jakarta (2.3 percent quarter-on-quarter), followed by Greater China – rents in Beijing have risen 1.7 percent quarter-on-quarter while growth in prime malls in Hong Kong has eased to 0.9 percent quarter-on-quarter. Average rents in Australia were broadly unchanged over the quarter.
Retail sales have recently been much stronger in China (12.6 percent year-on-year) and Hong Kong (15.8 percent year-on-year). Demand from retailers remains generally healthy in China, as requirements from mid-tier retailers and new-to-market foreign brands help to offset slower expansion by some existing luxury brands. Hong Kong continues to see robust demand from luxury brands and food and beverage operators for space in core locations.
Consumer confidence remains well below the long-term average in most European countries and overall retail sales are unlikely to show any growth in 2013. Yet, despite a subdued outlook for retail sales, there are bright spots within positive growth projected for Russia, Turkey and the Nordics.
Core retail markets remain a priority for international retailers. At the same time, retailers also recognize the expansion opportunities provided by the region’s emerging markets, but are acting cautiously when opening new stores. New supply of prime retail space remains scarce, which is helping to maintain prime rents in most key European markets. During 1Q, prime rents rose in the Nordic cities of Oslo (+3.0 percent quarter-on-quarter), Copenhagen (+2.5 percent) and Stockholm (+0.6 percent). Strong rental growth for prime unit shops is forecast in Moscow, London and the major German cities in 2013.
Around 14.6 million square meters of new shopping mall space will be completed in Europe during 2013 and 2014, 40 percent of which will open in Russia and Turkey. Prime shopping mall rents across Europe remained stable over the quarter. Healthy increases in prime rents are forecasted for Germany and Russia in 2013.
Overall, the global retail sector is becoming increasingly borderless, and we’re seeing most markets rebound at a steady pace. We expect that 2013 will be another year of success for retail across the world, with some bright spots in all regions.
Margaret Caldwell is a Managing Director, Retail Investment Sales for Jones Lang LaSalle based in Atlanta. Contact her at Margaret.Caldwell@am.jll.com or @MargCaldwell.
Kris Cooper is a Managing Director, Retail Investment Sales for Jones Lang LaSalle Atlanta. Contact him at Kris.Cooper@am.jll.com