In commercial real estate, some sectors have had a good pandemic while others have been hit hard. The retail sector is firmly in the latter camp. Even before the pandemic struck, retail properties were out of favour with institutional investors. A toxic combination of an overbuilding of stores and the severe disruption caused by the rise of e-commerce undermined sentiment towards the asset class, particularly in the United States and Britain. The Covid-19 pandemic has served as an accelerant for the shift to online sales, putting further pressure on the sector and bolstering the appeal of other types of property. In the US and Canada, retail’s share of investment transactions has fallen from close to 20 per cent in 2015 to less than 10 per cent in the first quarter of this year, according to CBRE data. By contrast, deals in the industrial and logistics sector have surged from 15 per cent in 2018 to more than 25 per cent at the beginning of this year, a similar trend to the one in Europe. The sector has been the main beneficiary of the pandemic-induced shift to online shopping. However, certain types of retail properties have benefited from the pandemic. Meanwhile, a correction in prices has also left the sector with the most attractive rental yields in commercial real estate. Earlier this month, a consortium of investors led by private equity fund Fortress Investment Group struck a £9.5 billion (US$13.2 billion) deal to acquire Wm Morrison, the UK’s fourth-largest supermarket chain. Part of Morrison’s appeal to private equity investors is that it owns 85 per cent of its property portfolio. Among all the types of retail real estate, grocery stores proved the most resilient during the pandemic. They are underpinned by the surge in online sales, physical stores’ irreplaceable role in the food distribution process and the strength of grocer covenants. In the US, grocery-anchored shopping centres have become investors’ preferred retail property type. A report published by JLL in March noted that “as essential retail, grocery stores sustained shopping traffic and sales as other retail assets struggled”. Furthermore, a correction in the prices of retail assets, which began before the pandemic erupted, has intensified in the past year, especially in the UK. This has happened at a time when the prices of highly sought-after logistics assets continue to rise sharply and when yields on office assets remain remarkably stable despite the shift to remote working. According to JLL, prime city-centre shopping centres in Britain are trading at yields of close to 7 per cent. That is almost 3 percentage points higher than yields on high-quality logistics assets. In Asia, by contrast, the price correction has been less pronounced, partly because there have been fewer signs of financial distress. “From a pricing standpoint, Western retail has become more attractive,” said Henry Chin, head of research for Asia-Pacific at CBRE in Hong Kong. Yet, while the pandemic has acted as a catalyst for a sharper price correction in UK and US retail real estate, it has also accentuated the operational resilience and technological edge of Asian retail property. As I argued previously , the forces propelling the development of the retail industry in Asia are distinct from those driving the sector in Western economies. For starters, Asia is turbocharging the growth in global retail sales, with the compound annual growth rate between 2014 and 2019 more than four times that of the rest of the world, according to a report published by management consultant Bain & Company last August. That growth is being powered by online sales . Not only has Asia leapfrogged Western economies in adopting online sales channels, levels of shopping centre space per head – with the notable exception of Australia and Japan – are far below those in Britain and America. This puts Asia in a unique position. Better placed to cope with digital disruption and at the forefront of omnichannel shopping, the region’s retailers have been more successful in future-proofing their assets and operations, putting them on a more secure footing than their Western peers. This is one of the reasons there have been several high-profile shopping centre deals in Asia this year. Last month, Canadian asset manager Brookfield pulled off China’s largest retail transaction since the pandemic erupted by acquiring a portfolio of Chinese shopping centres that have benefited from intensive asset management for US$1.4 billion. Hong Kong retail sales up 10.5 per cent in May as growth appears to taper off In another prominent deal last month, Hong Kong-based Link Reit, Asia’s largest real estate investment trust, bought its second shopping centre in Guangzhou for US$501 million, leveraging its asset management expertise in the city to reposition the mall as a leisure destination for affluent families. Chin said the pandemic had accentuated the importance of asset enhancement strategies in retail real estate. That is one of the areas where Asia, a leader in digital transformation and experiential retail, has a clear edge. In an ideal post-pandemic world, retail assets would provide investors with a combination of the sharp price discounts in Western economies and the operational and innovative strengths in Asia. The reality, however, is that buyers must decide which enticement is more appealing. Still, that retail real estate, which remains one of the asset classes least favoured by investors, offers such enticements in the first place is a sign that the sector’s prospects are brightening. Nicholas Spiro is a partner at Lauressa Advisory