Tourism and wage growth has boosted Japan’s retail sector, however other developed Asian markets have demonstrated steady performance and resilience.

Simon Smith, Head of Research & Consultancy, Asia Pacific at Savills, says: “The diversity of retail real estate markets across the region makes it almost impossible to generalise, however all are demonstrating how tourism can boost retail. Most retail markets are stabilising after the challenges of e-commerce and the pandemic. Future supply is muted in a number of cities, and this is sparking investor interest.

“One interesting phenomenon is the success of cheaper retail destinations which are close to more expensive markets and thus benefit from short-hop tourists looking for better value.”

Retail rents continued to fall in the third quarter across the first tier cities of China and the luxury retail sector continues to struggle. China’s luxury market is expected to shrink as much as 15% this year, according to consultancy Digital Luxury Group. The China luxury slowdown has contributed to falling share prices for European luxury goods manufacturers.

However the sector is showing some signs of resilience. Vacancy rates in Shanghai, Beijing and Guangzhou rose only marginally, while Shenzhen saw vacancy fall, in the third quarter. New fast fashion and entertainment brands continue to emerge around the country and there are still a few overseas retailers opening new stores. Meanwhile, local and national government support measures are expected to aid the retail sector.

Shenzhen has also benefitted from a surge of tourism from Hong Kong, as it offers much lower prices for hotels, F&B and shopping. Some Shenzhen retailers have begun tailoring their offer to these customers.

Meanwhile, Hong Kong’s retail market continues to struggle and those who shop in Shenzhen are not entirely to blame. Tourists from the Mainland and elsewhere are fewer in number and spending less. Furthermore, Hong Kong has lost 200,000 residents in the 20-39 age group, a significant blow to retail spending. A series of government incentives are aimed at boosting tourism and local spending but are expected to take time to be effective.

The headline story for retail in Japan is the boost from tourist spending, however strong wage growth is boosting domestic consumption. Furthermore, the weak Yen means more Japanese tourists are staying and spending at home. Regional Japanese cities are seeing strong rental rises, 5.9% overall in the first half of this year. Tokyo has seen new flagship stores opened by brands including Rolex and Balenciaga.

The retail investment market has been somewhat muted but there are deals in the pipeline. One notable trend has been retailers buying their stores, a sign of confidence and that they expect rents to rise.

Australian retail sales have been flat in real terms this year; however the sector’s stability meant it was the best performing sector in The Property Council of Australia/MSCI Australia Annual Property Index for the 2023/2024 financial year. The relative performance of the retail market and low future supply has begun to attract interest from investors, with acquisitions rising from last year. Real retail turnover is expected to rise to 2.3% next year, according to Deloitte, suggesting a more positive outlook.

Overall retail sales have improved marginally in Singapore so far this year, buoyed by recovering tourism but hit by the increasing number of Singaporeans spending in Johor, Malaysia. Aided by a strong Singapore dollar, they have boosted spending power across the border. Savills Research predicts Orchard Road retail rents will rise 3-4% this year, while suburban mall rents will be flat.

A new Singapore retail phenomenon is the introduction of Chinese F&B brands, which see Singapore, with its expat Chinese community, as a good first step in international expansion. The city-state has seen a number of hotpot brands and Chinese coffee outlets, such as Luckin Coffee, open up shop.

Further reading:
Japan retail report

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Simon Smith