Why Asian retail real estate remains attractive despite the e-commerce revolution

Shopping centres are evolving and providing new kinds of value, and Asian retailers are well placed to cope with digital disruption

With China and South Korea in the vanguard of e-commerce and huge scope for development in India, Asian retail is best placed to benefit from the recovery

3-MIN READ3-MIN

A booth of Chinese toymaker Pop Mart is seen inside a shopping centre in Beijing on November 27, 2020. Photo: Reuters

Nicholas Spiro is a partner at Lauressa Advisory, a specialist London-based real estate and macroeconomic advisory firm.

Published: 2:30pm, 17 May 2021Updated: 10:37pm, 17 May 2021

Even before the Covid-19 pandemic struck, the retail sector was out of favour with property investors. The combination of a dramatic overbuilding of stores and the severe disruption caused by the rise of e-commerce undermined sentiment towards the asset class, particularly in the US where many department stores and shopping centres went bust.

The pandemic has turbocharged the shift to online sales and bolstered the appeal of other property sectors, notably the e-commerce-driven logistics market. It has also reduced the share of retail deals in global transaction volumes.

In the 12-month period between the start of the second quarter of 2020 and the end of the first quarter of this year, retail investments accounted for just 11 per cent of income-producing real estate transactions, according to data from property consultant RCA.

In the US, retail deals in the first quarter of 2021 were down 44 per cent year on year. That is compared with a 50 per cent decline in Europe, according to CBRE.

However, in the Asia-Pacific region, which is leading the recovery in global investment activity, retail transactions rose 9 per cent year on year. This was supported by the reopening of economies and a sharp rebound in retail sales.

While logistics and industrial properties remain the most sought-after assets in Asian commercial property, mirroring the trend globally, retail deals account for a larger share of the market than in other regions and were more frequent last quarter, along with hotel transactions.