Consumer index remains vulnerable amid market volatility

• The consumer sentiment index fell from 88.8 in October to 86.5 in November and rebounded to 89.9 in December; however, it has remained below the benchmark of 100 for seven consecutive months amid economic uncertainty. Retail sales also showed a downward trend, posting -0.7% in October and -2.2% in November y-o-y. Same-department store sales recorded 8.0% in October and 3.7% in November.
• The number of overseas tourists in November recorded 459,906, up 387.4% y-o-y. This was attributable to the removal of the COVID-19 testing requirement for entrants to Korea starting from October. However, the monthly number of visits by Chinese travellers has plunged, posting -22.3% in October and 5.4% in November on a m-o-m basis, respectively, due to China’s stringent lockdown measures.

Both Prime Shopping Malls and High Streets vacancy levels contract

• No noteworthy retail assets were added to the JLL basket for either Shopping Malls or High Streets in 4Q22.
• The vacancy rates of Shopping Malls and High Streets tumbled, reaching 2.8% and 11.9%, respectively. Time Square’s vacancy rate showed the largest decrease of 242 bps. Myeongdong, which demonstrated the largest vacancy uptick the previous quarter, reversed course in the quarter, posting 17.1%. This was attributable to Adidas, which will be taking up the space that Zara previously occupied.

Retail rents grow while investment appetite freezes

• Overall net effective rent for Shopping Malls was up 1.2% q-o-q and 4.2% y-o-y. The overall rents for High Streets climbed 0.6% q-o-q and 1.4% y-o-y. Looking at High Street districts, rents in Myeongdong, Gangnam and Cheongdam exhibited marginal upticks q-o-q. However, those in Garosu-gil and Hongdae remained flat due to lingering volatility.
• Market yields of both overall Shopping Malls and High Streets rose by 30 bps and 40 bps, recording 5.8% and 5.6%, respectively. One noteworthy deal was the transaction of an urban/high-street retail building at 117-2 Noryangjin-dong, Seoul, purchased by INMARK REITs Management from an individual for KRW 60.1 billion. There were no notable transactions of Shopping Malls in the quarter.

Outlook: Mixed prospects for the retail market

• Moving towards a higher interest rate environment with consumers’ capital tied to loan issues, such as high-level household debt, the consumer sentiment index may stay below the benchmark until consumers adapt to the new economic milieu. Inbound traveller numbers will likely trend upwards as airlines show signs of returning to normalcy and China reopens its borders in January 2023.
• A big shift in the retail investment market sentiment is unlikely as investors may not be keen on retail assets until lingering market volatility settles to some extent. Considering the trend of rate hikes and decreasing retail transaction volume, the market yields of both Prime Shopping Malls and High Streets are likely to expand further.