RETAIL property in Asia Pacific continues to outshine other sectors as rents grow, showed a new report by DTZ.

Retail rents have performed well with growth of around 3 per cent per year since 2004 – without any significant falls. The level of growth has been maintained despite overall negative performance during the earlier part of 2009, DTZ noted.

Additionally, retail rents returned to positive growth in Q4 as the more heavily weighted markets (Shanghai and Singapore) have turned positive.

‘Retail markets are generally doing well with quarterly rental growth rates up to 8 per cent being reported during the year,’ said David Green-Morgan, head of DTZ Asia Pacific Research. ‘Strong retail sales have been sustaining retail markets across the region. Government stimulus across the region has helped sustain the retail sector and this is helping to sustain rental levels and boost prices in many locations.’

By contrast, the Asia Pacific office and industrial markets continue to be sluggish as 2009 comes to an end, DTZ said.

Over the course of the year, the office sector experienced the largest fall with a peak to trough decline in office rents of around 27 per cent so far. Industrial rents, on the other hand, have fallen around 3 per cent year-to-date, with the possibility of further falls to come. Despite more encouraging economic fundamentals across the region, occupier demand for these two sectors remains weak on the back of slow global growth, DTZ noted.

But the report also pointed out that both office and industrial sectors around the globe have either reached or are approaching the bottom of the rental cycle as many markets have reached a balance between supply and demand – albeit at a much lower level than the peak of the cycle.

In Q4, global office rents fell by 2 per cent while industrial fell by one per cent. But global retail rents grew by 0.2 per cent on the back of the gains in Asia Pacific and levelling out in Europe.

The report also noted that global capital city prime rents are highlighting the continuing trend for the flight to safety. Prime rents in the main markets have held up far better than anticipated. Rents in London City, Paris’s central business district, Hong Kong and Sydney have all levelled off during Q4 where many tier two cities continued to fall.

Source: Business Times, 19 Dec 2009

But DTZ notes that one major caveat is the capital required for de-leveraging

ABOUT US$85 billion will be available for direct investment in real estate across the Asia Pacific next year, double the US$43 billion transacted in the past 12 months, says DTZ Research.

The US$85 billion equates to 27 per cent of the US$315 billion total capital available for direct investment in real estate worldwide in 2010, DTZ says in its The Great Wall of Money report issued yesterday. The report analyses data generated by DTZ Research’s equity tracker.

It also says 2010 worldwide transaction volume should be more than double this year’s US$157 billion and could return to the level last seen in 2004.

Globally, the ratio of capital chasing real estate is about US$2 for every US$1 of deal volume. The ratio is relatively higher in Europe at closer to 2.2, compared with 2 in the Asia-Pacific and 1.8 in the Americas.

‘Asia Pacific and Europe are relative winners, with more money targeting these regions for investment than they are raising and investing elsewhere,’ DTZ’s report says. ‘Together, these regions are targets for 77 per cent combined of the total investment in 2010 but are raising only 49 per cent of available money.’

But DTZ cites one major caveat – capital required for de-leveraging. It points to the considerable amount of commercial real estate lending due for refinancing over the next two to four years.

‘While some of the available capital may be diverted to this purpose – for example, through provision of debt financing – we expect the de-leveraging and unwinding of support policies will be slowly phased in over time, limiting the immediate impact in 2010,’ it says.

Third party-managed funds are the largest investor category, accounting for 60 per cent of available equity, followed by institutions with 28 per cent and sovereign wealth funds with 6 per cent. The remainder has been raised by German open-ended funds, publicly listed companies and various private companies/high-net worth investors.

DTZ says 81 per cent of total capital raised is being directed towards multi rather than single-sector investments. Just 19 per cent of the capital has been raised to target a specific property sector only – chiefly industrial (5 per cent), office (4 per cent) and retail (3 per cent).

As well, 70 per cent of total capital is targeting two or more countries. Those investing in a single country are predominantly focused on the major liquid markets of the UK and US, accounting for 9 and 7 per cent respectively of total planned investment. Germany, China and Japan are expected to make up a combined 5 per cent of planned investment.

‘Globally, most investors are adopting multi-sector and/or multi-country strategies as part of sector and geographic diversification strategies, and reflecting the opportunistic nature of most fund mandates,’ says Nigel Almond, associate director of real estate strategy at DTZ Research.

Source: Business Times, 18 Dec 2009

Investors concerned a real estate bubble burst would derail the region’s economic recovery

Property prices in parts of Asia have risen sharply, sparking worries that bubbles are forming and prompting policymakers to rein in the sector.

Investors fear any real estate bubble burst could derail the region’s nascent economic recovery in the way the US housing sector slump brought on the worst global downturn in decades.

Here are some questions and answers on where potential bubbles are, their impact on shares, where prices are headed and policies that governments might implement next year:

Bubble threat: where does it loom largest?

China and Hong Kong face the highest risks in Asia, followed by Singapore, as property prices have risen strongly, especially in the second half, due to ample liquidity, low interest rates and a rally in stock markets.

‘If it (the China bubble) does burst, is that going to suddenly be a big burst? In this case, it’s got a big impact on the rest of Asia,’ said Jeremy Helsby, group CEO of UK-based property firm Savills .

Some cities in China and Hong Kong’s mass market have seen residential prices rise by about a third this year, while in Singapore, private home prices soared 16 per cent in the third quarter from the previous quarter, the biggest jump this decade.

‘Singapore and Hong Kong are held up as examples of the effects of excess liquidity and credit in Asia. The residential property data certainly raise cause for concern,’ said Alaistair Chan, an economist at Moody’s economy.com.

China’s aggressive stimulus measures and developers halting some projects late last year due to the economic downturn helped push up prices this year, while Hong Kong’s limited land, coupled with a government land sales hiatus boosted prices.

The bubble threat also surfaced in Australia and South Korea earlier this year though various government policies have allayed those fears.

What is the impact of potential bubbles on shares?

Property shares have been outpacing main indexes in China , Hong Kong and Singapore, with the sector sub-indices up by 70 per cent to more than doubling.

Shares of top Chinese developer China Overseas Land and Investment and Singapore’s CapitaLand, South-east Asia’s largest developer, have signifcantly outpaced their local market indexes.

While some real estate stocks are likely to continue to outperform the broad markets in 2010, gains will be muted due to wariness over governments’ tightening policies as they act to fight off the potential of a property market meltdown.

‘Next year, we won’t see the exceptional returns we’ve seen in either financials or property shares. But I do think we will see some further but moderate growth in a number of property shares,’ said Rod Cornish, division director at Macquarie Capital Advisors. If a bubble does burst, it could hamper developers and real estate agents exposed to the markets affected. For instance, if a bubble bursts in China, major developers in the market, such as Shimao Property , could see their earnings and share prices hurt, analysts said.

Where are property prices headed for next year?

Most of the huge price rises in Asia are in the residential sector as reluctance by companies to hire kept demand for office space relatively weak in the region.

Residential prices in most markets are set to stabilise next year, with rises seen gradual compared to the huge swings this year. Prices from Japan to Singapore are expected to either remain stable or rise by nearly 10 per cent.

Residential prices in China are expected to rise by as much as 5 per cent by the end of next year from now, a Reuters poll showed, less than gains logged for this year.

Comparatively, commercial prices will likely be steady or rise marginally in China, but might see a more significant increase in Singapore, analysts and industry executives say.

What kind of policies will governments come up with?

Some countries have already reacted with monetary and property-related policies to allay fears over speculation.

In December, Australia raised interest rates for a third straight time, while South Korea in September imposed mortgage lending in Seoul and nearby areas to stem a housing boom.

In the months ahead, governments in the rest of Asia will likely resort to releasing land supply, taxes and bank lending measures to stablise property prices, instead of using monetary tools, since inflation is still benign.

‘Governments are nevertheless unlikely to crack down on speculation too harshly. One worry is that this could deter legitimate investment, causing the market to slump,’ said Mr Chan at Moody’s economy.com.

Source: Business Times, 17 Dec 2009

Bank economist also does not expect a W-shape recovery

ASSET bubbles will not be a problem in Asia until 2010 and beyond, even though policymakers appear well aware of the risks of excess liquidity in the system, say OCBC analysts.

At a briefing yesterday, economist Selena Ling explained that Asian markets are still early in the recovery cycle, and that attempts to address an overheated market should come much later.

However, she says, the days of ‘easy money’ under the Greenspan era are definitely over, and the central banks in the region are cognizant of the asset bubble risks. This can be seen from the rate hikes in Australia, while the others keep a close watch on the situation.

Yesterday, Ms Ling also downplayed the likelihood of a W-shape recovery, citing factors such as the cycle of upgrades to GDP growth, corporate earnings forecasts and ratings which are expected to continue into the first half of 2010.

‘So, while growth may tail off in the second half of 2010, we don’t expect a sharp correction to the same magnitude from Q4 last year to Q1 this year,’ she said.

Turning to foreign exchange, OCBC thinks that the immediate outlook for the US dollar continues to be negative, as the economic recovery story plays out in the near-term, says FX strategist Emmanuel Ng.

Pointing to the Baltic Dry Index, which moves inversely with the US dollar and the production numbers in the OECD, Mr Ng explained that both indicators have posted sharp rebounds – an indication of higher economic activity.

Moreover, the forex markets are poised to see higher volatility if global exit strategies are not synchronised.

Under such situations, there could be a shake-up in the markets that will see the US dollar briefly ‘gaining traction against the majors’.

As for Asian currencies, OCBC said that broad dollar direction coupled with equity market performance will continue to provide underlying impetus for those units.

In particular, the pick-up in the foreign purchases of Asian currencies is expected to be sustained going into the new year.

As for ratings on local stocks, OCBC is ‘overweight’ on telecommunications, oil & gas, commodities and infrastructure.

Top picks include the three telcos, Noble, Ezra, Wilmar, Midas and Tat Hong, said investment research head Carmen Lee.

Source: Business Times, 2 Dec 2009

They may burst if short-term capital flowing in pulls out

GOVERNMENTS have been urged by a top United Nations economist to keep an eye on asset bubbles, which he says are appearing all over Asia as investors pour money into the rapidly recovering region.

UN Assistant Secretary-General Ajay Chhibber also cited the woes faced by Dubai, in the Middle East, as an example of how the underlying issues of the financial crisis had not been solved.

‘I see bubbles in many, many Asian countries,’ he said during a visit to Singapore yesterday.

He was speaking to reporters at a press conference at the Institute of Southeast Asian Studies after releasing a UN Development Programme (UNDP) report on how the global financial crisis has affected the Asia- Pacific.

‘The strengthening of the equity markets in most Asian countries is clearly a signal of fairly substantial inflow of capital coming in,’ said Mr Chhibber, a former World Bank senior economist. ‘It’s Asia-wide, with some exceptions.’

While it is fine if the capital is used for long-term investments, the worrying thing is that some of the inflows are short term and volatile, he said.

Developed countries have relaxed their monetary policies in response to the recession, making liquidity readily available, but this means the money will quickly flow out again when these policies are eventually reversed.

Once the liquidity is withdrawn, the bubble may burst – similar to the situation in Dubai, where one of the government’s flagship entities is threatening to default on US$59 billion (S$81 billion) of debt, Mr Chhibber said.

While the size of Dubai World’s debt is ‘not significant enough to have a major impact’, the default is a signal that the underlying factors that caused the financial crisis have not been solved.

These problems have been temporarily papered over by the huge stimulus spending rolled out by governments, but how long that can continue is a question mark, he noted.

‘The balance sheets are still heavily debt-laden, and therefore a small shift in expectations or investor sentiment can really turn things,’ he said.

‘When the tide starts to go out again, you will see where the rocks are.’

For Asia to remove those rocks and embark on a sustainable growth path, the region must undergo fundamental changes, said Mr Chhibber, who is also the director of the UNDP’s regional bureau for Asia and the Pacific.

‘If Asia wants this to be its century, it must more vigorously find an alternate development path away from its old export-led growth model.’

In introducing the UNDP report, which he co-authored with UNDP senior policy adviser T. Palanivel and Professor Jayati Ghosh of India’s Jawaharlal Nehru University, Mr Chhibber laid out six areas where he said governments have to do more.

To tackle asset bubbles, they must put in place better tools to manage capital flows, he said. ‘Property markets are also extremely frothy all across Asia but with capital which could easily reverse.’

Second, they have to rely less on export demand and develop greater domestic demand by spending more and encouraging households and businesses to do the same.

Governments should also invest more to make sure that poorer members of the population benefit from economic growth as well, so as to minimise the effects of income inequality, he said.

This ties in with the fourth aim of providing better social protection for the needy, with more government spending on health care and more extensive social insurance programmes, including pensions and unemployment insurance.

Cleaner and greener growth is a fifth area of focus. Even as developing countries power ahead, there needs to be a shift from heavy coal and oil usage to solar, nuclear and renewable energy, he added.

Lastly, intra-regional trade in Asia should be expanded, which would help smaller economies especially.

In Singapore, for instance, domestic demand can never hope to substitute for external markets, but Asean can provide a bigger market and a stronger economic base to help buffer external shocks.

Source: Straits Times, 1 Dec 2009

Stopping the bubbles

HONG KONG Chief Executive Donald Tsang warned yesterday that asset prices in places like Singapore, South Korea and Taiwan were ‘incompatible and inconsistent with economic fundamentals’ and could lead to bubbles.

Mr Tsang told the Apec CEO Summit at the Suntec ballroom that the seeds of financial crises often come from government-implemented fiscal and monetary policies.

He cited the steps Japan took during its recession in the early 1990s and cautioned that the measures the United States is now implementing may lull it into a similar policy trap.

In the 1990s, near zero interest rates drove resources out of Japan and into the rest of Asia, which was experiencing rapid growth. This led to Tokyo becoming one of the biggest lenders in the world.

But it eventually led to asset bubbles forming in Asian countries, which imploded during the 1997 financial crisis and hurt Japan.

‘Leaders need to watch out… America is doing exactly what Japan did the last time with reduced interest rates and encouraged lending,’ said Mr Tsang.

He added that the weakening US dollar has replaced the yen as the currency of choice for carry traders with investments pouring into Asia.

He said the influx of capital was driving up asset prices in Asian countries – a worrying trend because they were ‘out of sync’ with the Asian export portfolio and its internal capacity.

‘Leaders need to look at these issues with foresight to prevent a repeat… There is a need for global cooperation since the world is so well connected now,’ he added.

World Bank president Robert Zoellick also identified Asian asset bubbles in an interview with Bloomberg on Wednesday, warning that they that could pose risks to the global economy next year.

He said that the region must be vigilant and that solutions will not be easy, although he suggested using other tools before raising interest rates to contain asset price surges.

Source: Straits Times, 14 Nov 2009

Asia’s policymakers are sticking with surgical steps to contain asset price inflation, but may soon have to turn to much more aggressive action if property bubbles keep inflating.

Authorities in Hong Kong, India, Singapore, South Korea and Taiwan in the last several weeks have either increased restrictions on property loans or issued warnings that tighter controls may be needed to contain a boom driven by a mixture of rock-bottom financing rates, rising wealth, government incentives and outright speculation.

Australia’s central bank is trying to get ahead of the game. Hot housing markets may push the Reserve Bank of Australia to raise its policy rate in December for the third consecutive month, the first time that has happened in about 20 years.

‘At the moment it’s a fairly softly, softly approach to things but I guess if this continues and liquidity continues to be ample and continues to push up asset markets, and that’s certainly our view, then the moves will become presumably more and more aggressive,’ said Robert Prior-Wandesforde, senior Asia economist with HSBC in Singapore.

The more aggressive tactics could include increasing taxes on purchases of second homes, capping mortgage limits or even threats of higher interest rates.

The latter apparently worked for the Bank of Korea to cool its property boom. Like Hong Kong, India and China, South Korean authorities tinkered with mortgage rules, by raising the minimum standard for mortgage debt to income and cutting the maximum ratio of mortgage loans-to-property value.

Yet the central bank also used overt warnings – early on – that higher interest rates could be used to cap property prices. The BOK has not yet raised rates, but its all-in approach has resulted in mortgage lending slowing for a third straight month in October.

Asset price inflation will become increasingly a sore point for China’s policymakers.

Bank of America-Merrill Lynch economists believe that China is going to take a cautious approach by maintaining stimulative policies for first-time home buyers, but tighten up rules for those purchasing a second home by increasing down payment requirements and adding to charges.

With real estate investment making up 10 per cent of GDP, the government will not want to deflate overall prices too quickly. The stakes, though, are high.

‘There is a big chance this asset price inflation will become a bubble,’ Mingchun Sun, chief China economist and head of China equity research with Nomura, said. ‘If the government can control the amount of leverage in the purchase of assets, then the damage can be controlled at least.’

One irony of the last year is that the global credit crisis has resulted in a Chinese credit boom, as the government encouraged lending to support the economy. Banks in China are expected to lend 10 trillion yuan (S$2 trillion) this year.

Mr Sun expects mainland banks to lend another 10 trillion in both 2010 and 2011, which would double loans outstanding. And since 70 per cent of credit growth usually ends up in household financial assets, how these households spend and invest this wealth will be key for asset price inflation for years to come.

He is hopeful that the government can control bubble pressures by allowing development on more state-owned property. His top stock picks include China Resources Land and KWG Property Holding Ltd because they own big shares of land in the west, where many Beijing-led projects have yet to start.

A Reuters poll showed analysts expect monetary tightening to cool some of Asia’s property markets next year. From now until the end of 2010, analysts expect residential property prices in Hong Kong to rise 8.8 per cent, and by only 2.5 per cent by the end of 2011.

Similarly in Singapore, house prices are seen up 7.5 per cent between now and the end of next year and then flat by the end of 2011. Interest rates in Hong Kong and Singapore generally track US funding costs, which are expected to begin rising in the latter part of next year.

The last time that the average policy rate in emerging Asia hit the end of an easing cycle was the second quarter 2004.

Five years later and housing prices are up single digits compared with the prior year.

Legg Mason fund managers have gone from bullish to wary on Hong Kong property stocks in the last three months.

With luxury apartment prices rocketing 40 per cent this year in Hong Kong, the US fund is neutral on the industry but remains bullish on mainland Chinese real estate.

Source: Business Times, 12 Nov 2009

* More transactions, property mgt to boost Asia revenue
* Sees spate of property IPOs as sign of confidence in sector

Property services firm Jones Lang LaSalle sees its Asian business driving growth next year as the region powers a global economic recovery, a top official said on Monday.

The company expects Asia to contribute almost a third of revenue in 2010, from a quarter in 2008, on the back of rising demand in China and India and as key markets such as Hong Kong and Australia start to show recovery.

China and India – the world’s two most populous countries – have seen home and office sales reviving in major cities as prices fell as much as a fifth and lower mortgage rates, after the global financial crisis last year cut off funding and demand.

‘It seems Asia is recovering more quickly than the US or Europe and actually will be one of the drivers of the world recovering,’ Jones Lang’s chief financial officer, Lauralee Martin, told Reuters in an interview.

‘It’s growing on both revenue and profit basis. It could reach a third of our revenues as we get into next year,’ Ms Martin, who is on a short visit to Mumbai, said.

Jones Lang is betting on more transactions as other Asian countries also see capital coming into the market, and believes its strong position in the property management business gives it the competitive edge.

‘In the first nine months, we have grown our property management business by 30 per cent because we have been able to save clients a great deal of money from that service,’ Ms Martin said.

‘In a slowdown, reducing employees may not be the best thing, but reducing the cost of services is certainly a better option,’ she said.

Last month, the Chicago-based company, one of the world’s largest real estate services firms, reported third quarter income rose a third, but said revenue fell 12 per cent to US$595 million as the global real estate downturn weighed.

‘The US market is not expected to get better until mid-2011. We could see a bottoming out by late 2010. But leasing and project development business will still feel pressure,’ Martin said.

Confidence returning

In Asia, positive sentiment in the housing market has led to developers flocking back to the equity markets after a two-year hiatus, and she said talk of an asset bubble was premature.

About 30 real estate firms have lined up for listings in China and India following a stocks rally. Chinese developers include Evergrande and Fantasia, while Indian firms include Emaar MGF, Lodha Developers and Godrej Properties.

‘For the industry this is a good thing, because it is equity going into real estate in a marketplace that needs to have some deleveraging and less debt,’ Ms Martin said.

India’s benchmark stock index is up 70 per cent so far this year, while the MSCI Asia Pacific exJapan stocks index has risen nearly 60 per cent in the same period.

‘In the US and Europe, there’s nothing being built. There is property being built in Asia but it’s also a market that has business growth that is going to need that property,’ Ms Martin said.

Source: Business Times, 9 Nov 2009

Policymakers fear asset bubbles could put at risk fledgling economic recovery

(SINGAPORE) Asian policymakers, confronted with rising real-estate values in the region that threaten to mimic the US mortgage bubble that roiled the global economy, are stepping up efforts to rein in prices.

Regulators in South Korea, Hong Kong and Singapore told banks in recent weeks they need to tighten lending standards. Central banks, including those of India and South Korea, have signalled a readiness to raise interest rates in the coming months.

Officials are trying to apply a lesson US Federal Reserve chairman Ben Bernanke identified from the financial crisis that erupted in 2007: constrain ‘excessive’ leverage before it destabilises the economy. At risk is sustaining the economic expansion of the region leading the world out of recession.

‘Asset bubbles are something that authorities have to contend with quickly and not let run away,’ said Tai Hui, head of South-east Asian economic research at Standard Chartered in Singapore. ‘Central banks are ready to take some of the wind out of the sails whether through interest rates or administrative measures.’

In Hong Kong, where mortgage rates are the lowest in at least 19 years, home prices have climbed 26 per cent this year, spurring authorities to tighten down-payment requirements for luxury homes. A one-bedroom, 816 square foot apartment in the city’s Kowloon district last month sold for HK$24.5 million (S$4.3 million).

Hong Kong’s index of finance stocks jumped 60 per cent this year, and the measure for property shares is up 67 per cent.

Singapore’s private-residential developers sold 10,000 units in the first seven months of 2009, more than the 4,300 sold the whole of last year. In South Korea, bank lending to households expanded for a seventh straight month in August as home prices rose.

Stocks are also surging in some markets. China’s Shanghai Composite Index is up 71 per cent so far this year, compared with the 25 per cent gain in the MSCI World Index, and benchmarks from Hong Kong, South Korea, Singapore and Taiwan are all up more than 50 per cent. By comparison, the US Standard & Poor’s 500 Index has advanced 20 per cent.

The advance in asset prices is also reprising debate over whether to respond with interest rates, or tighter rules for financial companies to restrain credit growth. Analysts said a combination of approaches is likely.

‘The challenge for the central banks is whether you want to raise interest rates because asset prices could’ cause a relapse of what befell advanced economies, said Robert Subbaraman, chief economist for non-Japan Asia at Nomura International Ltd in Hong Kong. ‘We’re starting to see kinds of quasi-type monetary policy through regulating prudential measures to try to lean against a rapid rise in asset prices.’

Fed policymakers, who had previously judged that asset-price swings weren’t a province for the central bank, abandoned that orthodoxy as the US mortgage collapse triggered US$1.6 trillion of credit losses and writedowns to date.

In Singapore, the government barred interest-only loans for some housing projects last month. It also stopped allowing developers to absorb interest payments for apartments that are still being built.

Hong Kong authorities last week limited buyers of homes costing more than HK$20 million to borrowing 60 per cent of the property’s value, down from 70 per cent before. The Hong Kong Mortgage Corp, a government-backed home- loan insurer, suspended insurance for homes that aren’t owner-occupied.

South Korea’s financial regulator said on Oct 8 it plans to tighten regulations on non-banking finance companies’ lending to households, and authorities have cut loan-to-value ratios in mortgages to 50 per cent from 60 per cent in some Seoul areas.

In the past month, China’s five largest banks were told to increase write-offs against bad loans and maintain their capital adequacy.

Besides such administrative measures, Asia’s central banks will need to ‘put a tight watch on monetary policies’ to prevent asset bubbles, the Asian Development Bank said last month.

Australia acted early this month, with a quarter point hike in the benchmark rate. Bank of Korea governor Lee Seong Tae said this month that rate rises may be bigger than the ‘usual baby step’ of 25 basis points. — Bloomberg, Reuters

Source: Business Times, 28 Oct 2009

But slowdown shows signs of abating in Asia-Pacific

MORE than half the world’s most expensive shopping streets have seen prime retail rents slump in 2009 – marking the biggest fall in retail rents in 24 years – a recent report from real estate adviser Cushman & Wakefield showed. Some 54 per cent of the 274 main streets across 60 countries monitored by Cushman & Wakefield saw prime rents fall in 2009.

New York’s Fifth Avenue remained the world’s most expensive street, though prime rents dropped 8.1 per cent to US$1,700 per square foot per year, Cushman & Wakefield said. Fifth Avenue has been the world’s most expensive street for the last eight years. It was followed by Hong Kong’s Causeway Bay, which showed a 15.1 per cent fall in rents to US$1,525 per square foot per year, while rents in Paris’ Avenue des Champs Elysees were static at US$1,009.

Cushman & Wakefield’s global head of retail, John Strachan, said the past year was one of the most difficult for the sector, with consumer spending and retail sales down in many markets.

‘The good news, however, is that the worst is almost certainly now behind us,’ Mr Strachan said in a statement, adding the annual survey’s findings represented the biggest global fall in retail rents in its 24-year history. ‘There will undoubtedly be some markets which will continue to be affected over the next year but we expect to see a greater number move back into positive territory,’ he said.

By region, the average rent across Europe was US$235 per square foot per year, followed by Asia-Pacific at US$234 and the Americas at US$193. On average, rents fell 15.1 per cent in Asia-Pacific and 5.8 per cent across Europe, but rose 0.3 per cent in the Americas.

The biggest increase in rents was in Sao Paulo, Brazil, with rents at Alameda Lorena and Iguatemi Shopping rising 111 per cent and 79.3 per cent respectively. In Asia-Pacific, Ho Chi Minh City’s CBD in Vietnam had the biggest increase at 50 per cent while in Europe, Rue St Catherine in Bordeaux, France had the biggest increase at 17.6 per cent.

At the other end of the spectrum, the biggest fall in rents was in Mumbai with Colaba Causeway falling 63.5 per cent. In the Americas, Rio de Janeiro’s Sao Conrado Fashion Mall fell 53.4 per cent while in Europe, Bucharest’s Calea Victoriei fell 48.1 per cent. The average rent across the 274 main street locations was US$213 per square foot.

Asia-Pacific subdued

Rental values across the Asia-Pacific region declined by 17.3 per cent. In light of the weak retail trading environment, it is not surprising that activity in the sector has been subdued in the past year, said Cushman & Wakefield in its report.

Weak economic fundamentals have severely affected the retail sector in a number of traditionally stable markets in the region, with headline rents declining and many retailers scaling back or postponing their expansion plans. Indeed, sentiment in the occupational market became increasingly cautious in 2009, which has led to negative rental growth – notably in India (-41.5 per cent), Malaysia (-17.6 per cent), Taiwan (-13.3 per cent), South Korea (-8.7 per cent), Japan (-8.3 per cent), Indonesia (-6 per cent), China (-5.1 per cent) and the Philippines (-4.2 per cent).

In Singapore, the emphasis for retailers has shifted from store openings to streamlining operations, which prompted a 14.4 per cent fall in rents over the year to June. Moreover, rents in the Orchard Road area are set to remain under pressure due to the large volume of new supply scheduled to come onto the market in the next 12-18 months, Cushman & Wakefield’s report said.

In Hong Kong, June rents were down 17.7 per cent from a year earlier. The upper-middle market, Central, is feeling the effects of the slowdown in the luxury sector, while the middle-market Causeway Bay has remained reasonably healthy, on the back of the recent or imminent arrival of a number of international retailers. After this correction, in the short term at least, retail rents in Hong Kong are expected to remain stable until there is a marked improvement in consumer confidence.

Across the region, Vietnam was the only country to buck the general negative trend, with rents up 21.4 per cent nationally on the back of limited supply, particularly in Ho Chi Minh City. Current retail supply in Hanoi also remains limited, leading to low vacancy rates and helping to drive up rents in the prime areas.

Looking ahead, for the Asia-Pacific region as a whole, the slowdown showed signs of abating in the second quarter of 2009, with evidence of improved market sentiment beginning to emerge as financial stimulus packages began to show results, the report added.

‘As a result, the outlook has become less negative and a period of stabilisation in values and activity appears to be underway,’ it said.

Source: Business Times, 24 Sep 2009