THE physical shopping center remains at the heart of consumers' retail experience, and retail growth is strong even as shopping centers refresh their schemes and reposition themselves.
Economic resurgence in Asia and Latin America has fueled an upturn in retail activity, with strong rental growth reflecting high demand for limited prime opportunities, according to Cushman & Wakefield and the International Council of Shopping Centers.
Their recent report focuses on the global shopping center industry and the macroeconomic and consumer trends impacting the industry in the Asia Pacific, Europe and the Americas.
Retailers and property owners are positioning their centers for the next phase of the global real estate cycle and responding to changes in consumer preferences, spending patterns and technological advances.
Owners of prime shopping centers worldwide are responding to consumers' ever-growing focus on the perception of value, convenience and a full shopping experience. Meanwhile, the increasing maturity of e-commerce, is also driving shopping center owners to seek creative ways to boost visitor traffic, including developing smartphone applications, creating virtual malls and producing events via social media sites.
"The physical shopping center is still at the heart of a consumer's retail experience, despite rapid changes in technology and how consumers shop and interact with brands," said Glenn Rufrano, president and chief executive officer of Cushman & Wakefield. "Successful retailers and owners will be those who are able to partner and carefully evaluate opportunities for revenue, profitability and expansion."
Owners are also focused on tailoring the tenant mix in their shopping centers for different segments of shoppers, adding a higher concentration of luxury brands in areas with pockets of wealth and a high volume of international tourists, and providing a stronger international mix of retailers to meet consumer demand.
Around the globe, retailers are choosing expansion in shopping centers over urban retail shopping districts, or high streets, mainly due to higher quality tenant mix in the shopping centers and more modern and convenient amenities at a relative discounted cost.
"The shopping center sector remains an exciting and dynamic sector of retail real estate," said John Strachan, global head of retail for Cushman & Wakefield. "As tenants and owners expand across borders we are seeing exciting new schemes defining the next phase of the industry's growth."
Asia Pacific leads the three regions in terms of rental growth for shopping centers, with rental rates increasing 2.8 percent over the past year. A booming consumer class, supportive economic policies as well as growing international scope and opportunities have fueled the region's strong performance, and will continue to support future expansion.
With rental rates of over US$9,974 per square meter per year for its prime shopping centers, Hong Kong's high volume of mainland tourists and dearth of prime shopping center space have made it home to the world's highest retail rates. Rents in Shanghai and Beijing, which are popular entry points for international retailers, have climbed to US$4,349 per square meter and US$3,961 per square meter, respectively.
The region's promising retail future has led to significant new development, with retail projects totaling nearly 28 million square meters in the first half of 2012. While some cities are at risk of overbuilding, positive long-term economic and demographic conditions will provide a strong platform for growth and absorption of new shopping centers across the region.
"While the China shopping center market in some ways is still in its infancy, it is growing fast and there is still strong demand from a range of fast growing retailers and very high levels of development activity," said James Hawkey, executive director of retail services, Cushman & Wakefield China. "Some cities in China are moving towards a measure of oversupply, however in most cities there is still room for well conceived, well designed centers with excellent management."
Despite the turmoil of the European debt crisis weighing heavily on its economy, the prime shopping center market in Europe remains a stable yet divided one. Country performance has been mixed, with annual growth rates for rental rates between zero and 0.5 percent.
Countries with the strongest economic expansion are also experiencing the strongest rental growth, including a 7 percent annual increase in Poland and a 4 percent rise in Turkey. Markets with highest rental rates include Moscow, at US$4,004 per square meter, London, at US$3,003 per square meter, and Zurich, at US$2,745 per square meter.
Tenant demand for well-located prime shopping centers remains strong, with some retailers preferring to expand into shopping centers rather than opening high street flagship stores, sustaining strong tenant demand for available spaces.