Global perspective on shopping center industry

By John Strachan

There are two big groupings in the global shopping center industry ― those in the mature markets of Western Europe and North America and those in markets in varying stages of development throughout Central and Eastern Europe, Asia and Latin America.

Whilst the newer markets of Asia and Latin America have been blossoming, the sense of recovery in North America earlier in the year has become rather muted. In Europe, the effects of the sovereign debt crises continue to hang over all but the top tier shopping centers and prime streets. These contrasting situations were reflected in the spreads in rental growth in top-class shopping centers among these regions.

In addition to differences in economic performance between the mature and emerging markets, there are of course other factors influencing the markets, such as consumer preferences, spending patterns and technological changes.

Typically, these developments in consumer choice have strengthened the premium/luxury and value segments, putting yet more pressure on the squeezed middle. The other major factor influencing shopping center culture is e-commerce as a new channel. In response, shopping center owners must come up with creative new ways to drive traffic in their malls.

As more international shoppers and wealthy customers visit the cosmopolitan cities, owners of shopping malls are focusing on more luxury and premium brands such as Gucci, Prada, Louis Vuitton and Ralph Lauren.

Globalization of retail has been spreading but local knowledge remains key and should not be ignored, particularly in the food and beverage sector where menus are usually modified to meet local tastes. Shopping habits differ from place to place ― for example, weekly or daily shopping trips ― and the retailer mix differs widely from one region to another.

A comparison of rental growth, rather than absolute rents, is probably a more reliable guide to differences between markets.

Asia Pacific, still more room to grow

The Asia Pacific retail market has been expanding in the last two years with exceptional rental growth and an inflow of international brands strengthening the retail sector in the region.

The highest growth has been seen in Hong Kong, followed by Shanghai, Beijing and Seoul, which has attracted many new fashion brands. Government policy is an important element with import tax reductions in China, easing of controls on foreign direct investment in India, and free trade agreements in Korea. All these developments are increasing opportunities for retailers but the ultimate winners are the consumers.

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

Europe, stability in turbulent waters

While retail sales in markets such as Spain and Italy have fallen, sales in some countries such as Germany and the United Kingdom have shown marginally positive growth, despite the turmoil of the European debt crisis. However, unlike Asia where second-tier cities are growing, in Europe anything other than prime retail is facing real challenges with weak demand and high vacancy rates.

Prime shopping centers remain stable, with some showing slight growth and relatively low vacancy rates. In Western Europe, the development pipeline has dried to a trickle but there are still significant plans for new shopping malls in some Central and Eastern European countries.

Americas, adapting to new normal

Class A malls are doing reasonably well with revenue increased up to 15 percent but mid market retailers generally are struggling with very low revenue growth as consumers are both price and brand sensitive, and are looking for value. The focus is on discount or luxury ― outlets in particular are prospering.

Latin America on the other hand, became the new hot spot and the focus for several international brands ― all reflected in strong growth throughout the region.

Despite challenging economic conditions in parts of the world, prime shopping malls and streets have been doing well, driven by consumer preference and demand from international brands.

Emerging markets in Asia and Latin America, with the support of governments, continue to attract luxury and premium brands and are experiencing strong growth where as any recovery in the Western European and North American markets is fragile at best.

What is common to all markets is the need to respond to rapid changes in technology and the new alternatives available to customers, to ensure a healthy future for shopping malls and to keep the physical shopping centre at the heart of the “retail experience.”

John Strachan is the global head of retail at Cushman & Wakefield.