Chongqing- In April 2021, one of the leading global real estate services firm Cushman & Wakefield, released a report entitled Main Streets – Retail Performance through a Pandemic – Impact and Outlook.

The pandemic first spread rapidly before affecting the world as a whole. This caused many nascent trends to see their implementation become turbo-charged, while many long-standing practices were forced to an abrupt conclusion.

Let’s take a brief look at their key findings focusing on the upper echelons retail streets in China and the Asia-Pacific region and new trends seen on travel, localism, e-commerce, and commercial rental markets.

Key findings;

• Key international destinations saw an above-average decline of 16%, while other markets declined by 8%.
• The top three most expensive cities remained Hong Kong, Tokyo, and Sydney in the rankings.
• Chinese mainland saw an average rental decline of around 5% in 2020.
• Chinese luxury retailers benefited from the lack of international travel as Chinese tourists shopped domestically.
• Asia Pacific has the largest global e-commerce share at USD2.5 trillion (Total of USD3.9 trillion)
• The online market share of luxury goods increased from 12% in 2019 to 23% in 2020
• Households responded in surveys that they had purchased more from local businesses.
• Online consumers in the Asia Pacific preferred domestic spending as opposed to international.

Major world cities across Asia-Pacific saw the little effect in rankings based on rental costs thanks to universal influence from the pandemic. (File photo)

International border closures

While the underlying driver of 2020 has been COVID-19, it has manifest in many different forms. Perhaps the most obvious and acutely felt, in a retail sense, has been the restrictions placed on population mobility—October 2019 and October 2020, from 31.3 million passengers to just 1.5 million.

A separate analysis estimates the reduction in tourism arrivals at 82% – the largest of any region, reflecting the severity of border closures. The figures become even starker at the national level, with travel at the mid-year practically down 100% universally. There has since been a modest recovery, but numbers remain extremely low – down approximately 80% on 2019 levels.

Rise of localism

Unfortunately, CBD locations suffered the double whammy of international border closures and “work from home” directives that came into play as national governments enforced lockdowns. Although retail main street CBD locations have struggled through 2020, suburban retail strips have risen significantly. With fewer people traveling into city centers each day and more people working from home, there has been a groundswell in daytime populations in suburban locations.

There has also been a shift to localism – supporting local businesses to help them survive through the pandemic. In a global survey of 8,000 consumers, 50% of households responded that they had purchased more from local businesses 7. Furthermore, consumers in the Asia Pacific were most likely to avoid making international online purchases, showing a preference to spend their money domestically.

Luxury brands saw an increase in performance as Chinese shoppers turned to spend their money domestically, thus lowering escape expenditure. (File photo)

Growth of e-commerce

The Asia Pacific, before COVID, was already a digitally hungry region, accounting for 50% of global internet users 8 and an estimated 64% of the world’s smartphone users. Against this backdrop, it is easy to see why the region also has the largest share of global e-commerce at USD2.5 trillion out of a global total of USD3.9 trillion.

The rapid growth of internet adoption across China and South East Asia has meant that many retailers have focussed on building out their online platforms rather than on physical store space. The lack of physical space overheads has resulted in deflationary price pressures as online retailers offer like-for-like products at cheaper price points.

Main street rental markets

The key market drivers in operation due to COVID-19 have been universally felt across the region. For this reason, we see little change at the headline level in the Asia Pacific rent cost rankings. Hong Kong, Tokyo, Sydney, Osaka, and Seoul maintain their dominance at the top of the list, with China’s tier 1 markets of Shanghai and Beijing rounding out the top seven markets.

Chinese mainland markets saw considerably less disruption than elsewhere in the region during 2020, with an average rental decline of around 5%. The Chinese government’s swift response meant a faster economic recovery, with national GDP rebounding to pre-COVID levels as early as Q2 2020.

Paradoxically, Chinese luxury retailers benefited from the lack of international travel as Chinese tourists were forced to shop domestically, thereby ploughing what would normally be escape expenditure into the national economy.

Suburban malls in China performed well during the pandemic as lowered mobility encouraged people to spend closer to home. (Photograph/iChongqing - James Alexander)

Outlook

There are positives on the horizon, more so in the Asia Pacific than in other regions worldwide. The first and foremost of these is that the virus was brought under control in comparatively quick order. This has meant that economies have largely been able to stay open throughout the second half of 2020 and into 2021, resulting in a brighter economic and employment outlook than seen elsewhere.

Over the next decade, the Asia Pacific regional economy will continue to outpace the rest of the world and grow from a 36% share to 40%. In addition, the middle class is forecast to swell by over 1.5 billion over the same period. These trends, together with the fact that many markets across the region, especially in South East Asia, remain underserved by physical retail floorspace, highlight the opportunities on offer beyond the current COVID-19 affected conditions.