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. Hong Kong-based Link Reit , Asia’s largest real estate investment trust, completed its fifth retail investment in mainland China by acquiring a 50 per cent stake in Qibao Vanke Plaza, a suburban shopping centre in Shanghai, for US$429 million in February. Completed in 2016, the shopping centre proved resilient during the pandemic, boasting an occupancy rate of almost 98 per cent at the end of last year, the envy of its peers in countries which have been in and out of lockdown. The investment case for retail real estate in Asia is compelling for several reasons. First, just a cursory glance at levels of shopping centre space per capita across the world shows the extent to which Asian countries, including advanced economies such as Australia and Japan, are undersupplied compared with the US and Canada. Even Europe has significantly less stock per head because of stricter curbs on development. Second, shopping centres are no longer purely about shopping. They are increasingly about providing a pleasant experience that allows people to socialise, enjoy different types of entertainment and improve their health and well-being. These new value drivers are particularly important in Asia, where there is a fast-growing middle class and where homes are among the smallest in the world . Third, while bricks-and-mortar retail is far less developed than in North America, Asia is well placed to cope with digital disruption. Having leapfrogged Western economies in adopting online sales channels , Asian retailers, especially those in China who are at the cutting edge of e-commerce, are in a much stronger position to improve their digital engagement with shoppers. There are signs that many investors are unduly bearish on the prospects for Asian retail real estate . Negative sentiment towards the broader asset class in the past several years, exacerbated by the coronavirus, caused investors to reduce their exposure to the sector. A report published by JLL on March 31 noted that the drop in yields on Asian retail assets since 2016 failed to keep up with the decline in office and logistics yields, resulting in more attractively priced retail assets. Moreover, prime shopping centres performed better than expected during the pandemic, especially in Seoul, where operators were successful in pivoting towards entertainment and experiential retail. Still, while the outlook for Asian retail properties is brighter than in the US and Europe, there is significantly less appetite for shopping centres than there is for logistics and multifamily housing . These sectors have benefited hugely from the pandemic mainly because of their defensive attributes. Retail assets, even those in prime locations, require significant enhancement to attract and retain tenants . This is especially true in a post-pandemic world where omnichannel strategies and the repositioning and repurposing of properties are increasingly important. Gordon Marsden, regional director of capital markets for Asia-Pacific at Cushman & Wakefield in Hong Kong, says investing in a shopping centre takes time and effort, and it “needs good quality asset management to go with it”. However, while retail might be perceived as a contrarian investment strategy, given the weight of capital targeting logistics assets and the increasing popularity of data centres , shopping centres are solidly mainstream in Asia. Prominent foreign investors, including Singaporean sovereign wealth fund GIC and private equity fund Blackstone , have completed major transactions in India and China in the past few years. Moreover, sentiment towards the retail sector has improved markedly since the vaccine breakthrough in November last year: an S&P 500 index of retail-focused real estate investment trusts has surged 63 per cent, while a gauge of industrial and logistics Reits is up less than 9 per cent. With China and South Korea in the vanguard of e-commerce and huge scope for the development of quality shopping centres in India, Asian retail is best placed to benefit from the recovery. Nicholas Spiro is a partner at Lauressa Advisory