Asia Pacific continues to be a global leader…

The region currently accounts for about one-third of the world economy and this is set to rise with forecast growth nearly twice as fast as the rest of the world from now till 2018. China and Japan are currently the world’s second and third largest economies after the United States. With forecasts for strong economic growth, more countries in AP will move up the rankings of the largest economies worldwide.

…although there are regional variations

In spite of strong economic prospects for Asia Pacific as a whole, growth will not be uniform across the region. There are two discernable groupings – developed and developing markets. Mature economies such as Australia, Hong Kong, and South Korea are expected to see average annual GDP growth of around 3% or nearly one-half that of the developing markets over the next five years. In the region’s largest developed economy, Japan, the government has moved forward with stimulus and reform measures in a bid to end two decades of stagnation. Although sentiment has improved since ‘Abenomics’ was initiated, uncertainty persists in some quarters as to the long term effectiveness of these measures.

Figure 1: 5-year total real GDP growth forecast, 2014-2018

Source: Oxford Economics, September 2014

In emerging Asia, China and India continue to be market leaders supported by growing middle classes and rapid urbanisation. After three decades of double digit rises, China is in the midst of transitioning to a slower norm for growth as the government attempts to rebalance its economy to rely less on investment and more on domestic consumption. Private consumption in China accounts for 38% of GDP, well below large developed markets such as Japan (61%) and Australia (55%). In India, optimism improved following the election of the first majority government in 30 years on expectations that it would move forward with much needed structural reforms – e.g. overhauling strained public finances and rigid labour rules – and infrastructure investments. The new government is targeting USD 1 trillion of investment into infrastructure and has received strong pledges for funds from China and Japan in recent months but will need to remove “red tape” to reach its target.

Elsewhere in AP, Southeast Asia is emerging as a regional driver benefiting from economic reforms and/or young populations (e.g. median age – Philippines 23, Indonesia 28). A shift to higher value-added manufacturing/services and a consumption-driven growth model should foster more balanced economies. The Philippines has been a recent outperformer with strength from a flourishing Business Processing Outsourcing industry while the sub-region’s largest economy, Indonesia, appears to be stabilising after a recent slowdown.

Implications for retail real estate

Strong economic prospects and favourable demographics will continue to see AP’s retail landscape evolve. A growing, wealthier consumer base will present many opportunities; however, retailers and mall operators are likely to be more selective about growth strategies as competition intensifies. In emerging AP, Tier 2/3 cities will gain prominence as retailer presence and shopping centre stock rise in major regional cities. Although regional trends will be evident, sub-regional and country-level differences will influence local strategies. For example in Jakarta, high occupancy in combination with limited supply due to a ‘mall moratorium’ is testing the traditional entry strategy of establishing a core location to build brand awareness before expanding elsewhere, as reported in JLL’s “Retail Cities in Asia Pacific”. In India, uncertainties surrounding FDI into multi-brand retailing are likely to see foreign retailers focused on single brand stores. Despite such challenges, retailers and mall operators will continue to be attracted to the region’s vast growth opportunities.

For more research insights into the retail sector, please see:

A Magnet for Retail: AP retailer expansion

Redefining Retail Places: for information on global trends influencing the retail landscape

Global: Discover how multi-speed economic growth is influencing retail real estate at a Global level

EMEA: Discover how multi-speed economic growth is influencing retail real estate in EMEA

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