Asia and Latin America’s economic growth has fueled an upturn in retail activity, with increasing rent reflecting high demand for the limited amount of prime retail opportunities in both regions.

Changes in consumer preferences, spending patterns and technological advances have impacted owners and retailers in all regions. Owners of prime shopping centers throughout the world are constantly repositioning their properties to provide consumers with their desired full shopping “experience.” With the increasing development of e-commerce, owners are using technology in new ways ― including smartphone applications, virtual malls and social media events ― to drive visitor traffic to their shopping centers.

However, despite rapid changes in technology and how consumers shop and interact with brands, the physical shopping center is still at the heart of a consumer’s retail “experience,” and 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 their tenant mix for different segments of shoppers, adding a higher concentration of luxury retailers in areas with pockets of wealth and high volumes of international tourists, and providing a stronger international mix of retailers to meet consumer demand. While many brands have positioned their flagship stores on high streets in urban retail districts, some retailers are actually choosing shopping centers over urban retail corridors for additional expansion, citing the advantages of the shopping centers’ higher-quality tenant mix and more modern, convenient amenities.

The shopping center sector remains an exciting and dynamic sector of retail real estate and as tenants and owners expand across borders we are seeing new schemes that will define the next phase of the industry’s growth.

In Korea, large-scale suburban shopping malls or arcades within urban mixed use buildings are likely to become mainstream in the future as an alternative to the present structure of established department stores dominating the market.

While globalization is taking a central role in the shifts occurring in the shopping center industry, consumer behavior is widely different throughout the world, which has had a large impact in shaping the formats of shopping centers throughout the globe. The U.S. has older and more mature super-regional shopping centers located in suburban areas, while in Europe prime shopping centers are generally less abundant and can be located in centralized locations and along high-traffic corridors. In Asia, density reigns supreme due to the high population ― the five largest shopping centers in the world are located in China, the Philippines, Malaysia and Thailand.

Asia Pacific

The Asia Pacific leads the three world regions in terms of rental growth for shopping centers, with rental rates increasing 2.8 percent over the past year. The Asia Pacific’s booming consumer class, new economic policies supporting retail and growing international scope have promoted the region’s strong performance, and will support future expansion. With rental rates of over $927 per square foot 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. Rent in Shanghai and Beijing, which are popular entry points for international retailers, have climbed to $404 per square foot and $368 per square foot, respectively.

The Asia Pacific’s promising retail future has led to significant new development, with 300 million square feet of retail projects 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.

Europe

Despite the turmoil of the European debt crisis weighing heavily on its economy, the prime shopping center market in Europe remains stable. Country performance has been mixed, with annual growth rates for rental rates between zero and 0.5 percent. Countries seeing the strongest levels of economic expansion are also experiencing the strongest rental growth, including a 7 percent increase in Poland and a 4 percent increase in Turkey. Markets with the highest rental rates include Moscow, at $372 per square foot, London, at $279 per square foot, and Zurich, at $255 per square foot.

Tenant demand for well-located prime shopping centers remains strong, with some retailers preferring to expand into shopping centers rather than opening high-street stores, sustaining demand for available space. Large units in prime shopping centers remain in short supply, with vacancy rates for prime centers trending on par or lower than those on high streets. New supply remains limited, with only 69.8 million square feet of new shopping center space delivered in 2011. More than two-thirds of new development is occurring in Central and Eastern Europe, with Russia, Turkey and Poland all poised to see significant new supply along with strong economic expansion.

Americas

The prime shopping center market in the Americas is outperforming other retail segments and property types. Growth in consumer spending and retail sales has resulted in positive demand for prime malls in the U.S. and Canada. Occupancy and rental rates have increased in urban luxury malls that cater to tourists in gateway cities, such as New York, Washington, D.C., Miami, Los Angeles, San Francisco, Las Vegas, Toronto and Vancouver. Pockets of wealth have driven strong demand for high-end and luxury products, while retailers in the middle are struggling with low revenue growth and declining revenues. 

By John Strachan, Global Head of Retail for Cushman & Wakefield

This article was contributed by Cushman and Wakefield Korea, the local unit of the New York-based global commercial real estate consulting firm. ― Ed.