Retail property outlook across Asia in 2019 hinges on mainland tourism and spending, analysts say

Property analysts have mixed views on the outlook for the retail sector in Asia in the coming year, as spending by mainland Chinese tourists remains among the wild cards that will determine the direction of asset prices.

Jonathan Hsu, head of property research for Asia at M&G Real Estate, sees retail property among the bright spots in 2019 on the premise that mainlanders will continue to explore new destinations for leisure and shopping in Asia-Pacific.

Hsu is favourable on prime retail locations in markets such as Australia, Japan, South Korea, and Singapore.

M&G Real Estate is a subsidiary of London-based M&G Real Estate. Its core fund, the M&G Asia Property strategy, had US$4 billion of assets under management as of September, making it one of the largest pan-Asian core real estate funds available for institutional investors, according to Hsu.

Hsu said Hong Kong’s retail property market is likely to appreciate 2 to 3 per cent in the coming year, while other markets in Asia-Pacific could see more muted growth of 1 to 2 per cent.

Last week, Link Reit, Asia's largest real estate investment trust, sold 12 shopping centres and malls in Hong Kong to a consortium that included Gaw Capital Partners and Blackstone for HK$12 billion (US$1.53 billion).

It was the second major disposal of commercial real estate by the Hong Kong real estate trust since a HK$23 billion sale of 17 malls in November 2017 to a consortium backed by Goldman Sachs and Gaw Capital Partners.

Hsu said that the retail property outlook remains upbeat even as China maintains tight controls on capital outflows.

“If you're buying small items, like retail shopping, there’s less scrutiny. The control is really on the big outflows,” Hsu said.

He added that mainlanders were travelling to new destinations in Asia on a more frequent basis.

“A lot of them are starting to venture into places like South Korea, Japan, Australia, and Singapore within Asia. I won't say they're bored of Hong Kong, but there’s more desire to experience new countries, different cultures so that's likely to continue and that's part of the reason why we're quite positive on prime retail streets,” he said.

Hsu said in terms of Japan he was favourable on places such as the Ginza shopping district in Tokyo, as well as selected locations in Osaka. In terms of Australia, he cited Sydney and Melbourne as the main beneficiaries of the growth in Chinese outbound tourism.

“If you walk around Orchard Road [in Singapore], you do see a lot of [mainland] Chinese shopping. So the spillover effect is likely to continue because the spending power is there,” Hsu said.

M&G Real Estate Asia acquired full ownership of the Singapore shopping centre Compass One in February 2016. Later the same year the fund bought the Casey Central shopping centre in Melbourne, the Upsquare Mall in Ulsan City, South Korea, and the Prato Nakasu in Fukuoka, Japan.

Hong Kong-based boutique real estate equity fund Arch Capital is also betting on continued growth of Chinese tourism and spending.

“We do not feel this growth would be much affected by macro events such as the US-China trade discussion,” said Richard Yue, CEO and chief investment officer of Arch Capital.

“We like the mass market retail segment and certain hospitality sectors which will continue to benefit from outbound China tourism. We have positioned our investment portfolio which would benefit from this growth in Hong Kong, Macau and Thailand.”

However, other analysts said there were growing risks to the retail outlook in 2019.

David Ji, head of research and consultancy for Greater China at Knight Frank, said signs of a slowdown in tourist spending could already be seen in Hong Kong, even as visitor arrivals from the mainland remain buoyant.

“The luxury sector has remained quiet in recent months,” Ji said. “Although the new infrastructure projects have boosted tourism arrivals to Hong Kong, retail sales did not benefit as those visitors either spent less or have changed their shopping habits. Retailers in Hong Kong in general remain cautious in the coming year. We foresee that the current weak momentum in Hong Kong’s retail market will persist in 2019.”