Retail Cities Asia Pacific The Dynamic Food and Beverage Scene

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January 2015 Retail Cities Asia Pacific The Dynamic Food and Beverage Scene

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Bangkok Note: Auckland Retail refers to shopping centres, new market. Source: JLL Research, 3Q15 FAST FACTS HIGHLIGHTS FAST FACTS ROBUST RETAILER DEMAND AND STRONG CONSUMER SENTIMENT • Improving consumer demand and increased inbound tourism have boosted retailer confidence. Retail sales in the Auckland region continue to trend upward with 5.9% y-o-y growth in June 2015. Demand for prime retail space remains strong as seen with the recent arrival of several international fashion brands including Prada, Dior and Topman/Topshop who have secured space along Queen Street. PRIME CBD RENTS CONTINUE TO SHOW AN UPWARD TREND • Prime rents continue to rise at a steady pace. Rents for Prime quality space in the CBD increased 9.9% y-o-y to NZD 2,225 psm per annum, the result of increasing demand for quality central space from premium retailers. SMALL INCREASES TO A TIGHT STOCK BASE • The retail stock base in the CBD expanded over the first half of 2015, driven mainly by the release of some newly refurbished supply. No new developments have come on-line in 2015, which is typical for the CBD due to limited available space. OUTLOOK: EYES ARE ON THE PRIME • Retail is set to show strong growth in the next few years, with particular momentum in the prime sector. International brands continue to express a strong interest in opening new stores, with both H&M and Zara set to enter the market in 2016.

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Note: Bangkok Retail refers to shopping centres, Central Bangkok. Source: JLL Research, 3Q15 HIGHLIGHTS FAST FACTS MALL RENOVATIONS IMPROVE COMPETITIVENESS • Demand for prime retail space remained strong, and only a handful of shopping centres performed poorly in 2Q15. International brands continued to show a strong interest in opening new stores, with 41 high-profile retailers opening at EmQuartier, and six brand retailers opening at the newly renovated The Emporium. RENTS RISE AMID STRONG INTERNATIONAL LEASING DEMAND • As international retailers expanded their presence in Bangkok and domestic demand remained robust, average prime rents increased by 1.7% q-o-q, to THB 2,418 per sqm per month. Capital values rose slightly less than rents, at 1.6% q-o-q, causing market yields to expand marginally. SIAM DISCOVERY CLOSES FOR RENOVATION • Siam Discovery closed for renovation, resulting in the temporary withdrawal of 26,500 sqm of leaseable space. The pre-commitment rate at recently opened centres was high, but the prime vacancy rate increased to 6.3% due to the ongoing renovation of Central Plaza Pinklao and a handful of poorperforming malls. OUTLOOK: PRIME NEW SUPPLY WITH HIGH PRECOMMITMENTS • Three prime projects, Central Plaza Westgate, Central Festival East Ville and Zpell, plus three centres under refurbishment should be completed by 1Q16, adding 305,000 sqm of retail space. Vacancy rates may fluctuate, but strong leasing activity plus high pre-commitment rates in the new and refurbished malls should push rents and capital values higher. Market yields should remain fairly stable.

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Note:Beijing Retail refers to shopping centres, Wangfujing Road. Source: JLL Research, 3Q15 HIGHLIGHTS FAST FACTS MID-MARKET FASHION AND F&B DRIVE DEMAND • Net absorption turned negative as new and centrally located malls struggled for tenants. Recent completions in prime locations also experienced slow leasing. Mid-market fashion, F&B and the kids’ sector drove demand. Cath Kidston opened at Taikoo Li South, and Macy’s department store launched a discount project. Casual dining remained popular, with several small brands expanding. RENTAL GROWTH SLOWS SIGNIFICANTLY • Rental declines at underperforming malls offset rental gains at strong properties, meaning Urban rents grew by just 0.3% q-o-q. Core rents fared slightly better, at 0.7% q-o-q. No en bloc deals were confirmed, although rumours persist about the potential sale of a mall in decentralised Beijing to a domestic investor. SUPPLY BOOM INCLUDES THREE LARGE SUBURBAN MALLS • Fun Mix opened with an 80% occupancy rate and Badaling Premier Outlet launched with a 70% occupancy rate. The vast Chengxiang Century Plaza department store also opened in South Beijing. Under pressure from weak projects, urban vacancy rose slightly to 8.1%, while core vacancy growth was flat. OUTLOOK: SLOWER RENTAL INCREASES PLUS GROWTH IN SUBURBAN SUPPLY • Softening retail sales, fierce competition and new supply should restrict rental growth. Landlords at the top malls may still raise rents, widening the divide between strong and weak properties. More than half a million sqm of retail stock is still slated for 2015, with nearly half being in the suburban market. Indeed, planned Suburban malls will outnumber new Urban and Core centres over the next four years.

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Note: Delhi Retail refers to shopping centres, Prime South Source: JLL Research, 3Q15 HIGHLIGHTS FAST FACTS RETAILER EXITS AND STORE CLOSURES OVERSHADOW LEASING ACTIVITY • Global and domestic retailers are waiting for space in premium malls, which is restricting leasing activity. Prime South, where Gap recently debuted in India, remains the submarket of choice for big brands and it enjoyed positive net absorption in 2Q15. Prime Others and Suburbs saw more retailer exits and store closures. RENTS AND CAPITAL VALUES RISE MARGINALLY • Strong performing malls in Prime Others recorded an increase in rents after three quarters of holding stable, but retailers continued to enjoy the upper hand in negotiations. A lack of quality assets for sale continues to restrict investment activity. NO NEW COMPLETIONS • Except for select under-construction projects, most shopping centre developments are struggling with weak retailer interest and construction delays. Vacancy rose slightly to 24.5%, q-o-q, with Prime Others recording the highest increase. OUTLOOK: HIGH-QUALITY SUPPLY WITH HEALTHY PRECOMMITMENTS • High-quality upcoming projects count healthy pre-commitments and should improve absorption volumes. Increased expansion activity by hypermarkets, multiplexes, F&B outlets and global retailers is projected, but bricks-and-mortar retailers must consider strengthening competition from online retailers when planning growth strategies.

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Note: Guangzhou Retail refers to shopping centres, Tianhe CBD Source: JLL Research, 3Q15 HIGHLIGHTS FAST FACTS MODEST RISE IN LEASING DEMAND • Leasing demand picked up, with overall net absorption almost double the 1Q15 level. F&B and fast fashion retailers drove demand, and mid-range Chinese restaurants featuring themed elements also expanded relatively fast. Luxury retailers remain cautious about expansion, but international mass market retailers were active, with Muji, Decathlon and Juicy Couture each committing to a new store in the city. RENTS IN EMERGING PRECINCTS TREND UP BUT CAPITAL VALUES REMAIN STABLE • Overall rents edged up by 0.5% q-o-q, to RMB 363.9 per sqm per month. Improved retail sentiment influenced a rental increase in emerging areas, but vacancy pressures and/or poor sales softened the stance of landlords in core locations. Capital values remained stable and no en bloc sales transactions were recorded. OVERALL VACANCY DIPS TO AN HISTORIC LOW • Guangzhou did not welcome any new retails space, and total prime shopping centre stock remained at 1.2 million sqm. A dearth of new supply and slight improvement in leasing demand pushed overall vacancy down to an historic low of 2.3%. OUTLOOK: DEMAND LIKELY TO RISE AMID A SUPPLY BOOM • Cautious retailers will focus new store openings on better quality malls. A high projected volume of new supply should release some pent-up demand, and malls scheduled for completion in 2H15 are recording healthy pre-commitment rates. Supply pressures will limit rental growth. Investment sentiment is expected to remain stable, with buyers displaying continued caution.

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Note: Hong Kong Retail refers to shopping centres, Central Source: JLL Research, 3Q15 HIGHLIGHTS FAST FACTS RETAIL SALES IMPACTED BY SLOWDOWN IN INBOUND TOURISM • Visitor arrivals growth slowed significantly, affected by protests against Mainland shoppers and measures to curb parallel trading. Coupled with the changing shopping habits of Chinese visitors, retail sales fell by 0.4% y-o-y. Declining profitability moderated demand for space from luxury retailers, and bigticket item retailers scaling back their footprints compelled landlords to lower rents. DETERIORATING MARKET CONDITIONS WEIGH ON RENTS • High street rents slid 4.9% q-o-q as retailers preferred shopping centre locations, which offer more favourable rental and marketing packages. Prime shopping centre rents edged up by 0.3% q-o-q. With street shop rents falling and investors reluctant to chase yields lower, vendors lowered their capital value expectations. SHORT-TERM SUPPLY REMAINS LIMITED • Phase one of Harbour North, Sun Hung Kai’s (SKP) retail project in North Point, will be completed in 2017, with the larger phase two slated for 2018. SKP’s three shopping centres in Yuen Long will be rebranded as the Yoho Mall. Yoho Midtown and Sun Yuen Long Centre are expected to open in 3Q15, with Grand Yoho slated for 2016. OUTLOOK: HIGH STREET RENTAL CORRECTION TO GATHER MOMENTUM • China’s anti-corruption campaign and the changing shopping profile of Chinese visitors are weighing on the retail sector. We forecast a 20-25% reduction in high street rents in 2015, although prime shopping centre rents should hold firm as demand outpaces supply. Robust local consumption is attracting investors to strong properties in growth areas, but investment activity will remain slow in core locations.

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Note: Jakarta retail refers to shopping centres, CBD Source: JLL Research, 3Q15 HIGHLIGHTS FAST FACTS F&B AND FASHION RETAILERS SEEK EXPANSION SPACE • Most malls continued to experience low single-digit vacancy, with some claiming waiting lists. Net absorption remained negative for the second consecutive quarter. Notable leases included Hysteric Glamour at Lippo Mall Kemang, Shirokuma at Kota Kasablanka, Gandaria City and Grand Indonesia, and Antony Morat, Harman Kardon and Prada at Pacific Place. RENTAL GROWTH DRIVEN BY EXCHANGE RATE INCREASES • Although rental leases are usually quoted in rupiah, landlords link rents to fixed USD/IDR exchange rates. Rents in USD terms remained largely flat, but some landlords bumped up their exchange rates so net effective rents in rupiah terms rose 2.5% q-o-q. En bloc asset sales have been non-existent in recent years, but strong interest in the Jakarta retail market means a sale is possible in the coming quarters. LOW VACANCY INFLUENCED BY LACK OF NEW SUPPLY • A governmental construction moratorium has restricted supply growth in Jakarta’s CBD in recent years, enabling landlords to keep vacancy rates at manageable levels. Vacancy rose marginally, but remained in low single digits at 4.2%. The stop on stand-alone shopping mall development remains, and most prime-retail landlords are unlikely to face near-term vacancy pressures. OUTLOOK: ONE NEW COMPLETION EXPECTED BY YEAREND • The St. Moritz phase two should open in 3Q15, boosting prime retail stock by around 80,000 sqm. Several tenants are fitting out new stores, including Asics, Shaburi and Cole Haan in Grand Indonesia, while Paul and Karen Millen are expected to expand in Plaza Indonesia. Rents and capital values should edge up steadily in the next 12 months.

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Note: Melbourne retail refers to shopping centres, CBD Source: JLL Research, 3Q15 HIGHLIGHTS FAST FACTS LEASING DEMAND REMAINS MODERATE DESPITE SPENDING REBOUND • Retail turnover in Victoria continued to grow at an above-trend pace, with spending increasing by 5.3% y-o-y in May 2015. Household goods and cafes, restaurants and take-away food services remained the key drivers of growth. The rebound in retail turnover is expected to gradually improve leasing demand in the short term. ROBUST COMPETITION FOR RETAIL ASSETS • Investment activity remains constrained by limited opportunities. Transaction volumes of just AUD 417 million were recorded in 1H15, compared with AUD 2.1 billion in the 2014 calendar year. Competition for assets and a low cost of debt are driving yields lower as investors seek to grow their portfolios. OCCUPANCY RATES REMAIN RESILIENT • Primarily driven by a decrease in the CBD vacancy rate, the average vacancy rate remained stable, while all other Australian markets showed an increase in 1H15. Supply for Melbourne in 2015 is expected to be 33% higher y-o-y, but is likely to be below the long-term average. The pre-2017 supply pipeline is evenly split across the retail sub-sectors. OUTLOOK: RETAILERS BUOYED BY RETAIL SPENDING RECOVERY • Few assets available for sale means transaction activity is likely to be lower in 2015 than 2014. Downward trending yields are forecast to continue and spreads between retail sub-sectors may narrow. Demand for retail space will be supply-led, with redevelopments creating options for new and expanding retailers. Prime centres should enjoy solid demand, but challenges exist for secondary or non-core assets.

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Note: Mumbai retail refers to shopping centres, Prime South Source: JLL Research, 3Q15 HIGHLIGHTS FAST FACTS DEMAND DRIVEN BY A DIVERSITY OF RETAILERS • Suburbs continued to witness the bulk of leasing transactions, owing to a growing affluent population and plentiful of space in newly opened malls. A diverse spread of retailers undertaking leases suggests demand is strengthening. Skipper Furnishings, Soie and Rostaa all entered the Suburbs submarket, targeting a burgeoning appetite for lifestyle products. OVERALL RENTS RISE SLOWLY • Prime South and Suburbs witnessed a marginal rise in rents, driven by quality malls with limited available space. In the investment market, a newly completed strata-titled mall in the Suburbs quoted prices in the range of INR 22,000-25,000 per sq ft. ONE NEW MALL OPENS IN THE SUBURBS • A single new shopping centre completed in the Suburbs, commencing operations with around 20% of space committed. Overall vacancy rose marginally to 21.0% at the end of 2Q15, largely attributable to increased vacancy in Suburban malls. OUTLOOK: NEW MALLS WILL ADD HIGH-QUALITY SUPPLY • Peripheral metropolitan locations are attracting retailers and developers due to improving residential catchment profiles and new supply. Rents and capital values are likely to appreciate in high-quality malls, while prominent high streets should continue to garner plenty of retailer interest.

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Note: Seoul retail refers to High Street, Myeondong Source: JLL Research, 3Q15 HIGHLIGHTS FAST FACTS CONSUMER SPENDING REBOUNDS FROM MERS OUTBREAK • Retail spending has been boosted by a strong rebound in local consumer confidence and inbound tourist arrivals following the de facto end to the Middle East Respiratory Syndrome (MERS) outbreak in July. • Occupier demand is being led by local retailers competing aggressively to launch flagship health & beauty stores and to diversify their F&B offering. Notable new openings included Healing on the Mediheal, Bottega Verde, Nature Kitchen and CJ Season’s Table. PRIME ASSETS TIGHTLY HELD • There has been strong interest in the retail acquisitions from both investors and owner-occupiers however deal volume has been restricted by a lack of available stock. LUXURY LEADS THE WAY • Three new luxury brand flagship stores opened in Cheongdam, the most luxury streets in Korea. Burberry opened a multi-level store (GFA 3,974 sqm) in October, Dior commenced operations for a new store (GFA 3,195 sqm) in June and La Perla launched their largest flagship store (NFA 462 sqm) in Asia. OUTLOOK: LOW INTEREST RATES SHOULD SUPPORT RETAIL SALES • Driven by the rebound in international tourist arrivals and record low domestic interest rates, the outlook for the Seoul retail market is healthy. Major new brands expected to enter the market include Flying Tiger Copenhagen. Local conglomerates are also set to benefit from the expansion of duty-free store licenses.

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Note: Shanghai retail refers to shopping centres, West Nanjing Road Source: JLL Research, 3Q15 HIGHLIGHTS FAST FACTS STRONG DEMAND FROM FAST FASHION AND KIDS BRANDS • Luxury retailers remained cautious about store openings, although successful price adjustments by Chanel and Gucci are influencing other brands to consider a similar strategy. Fast fashion and child-related retailers led leasing activity. Forever 21 opened two stores and committed to a flagship on Huaihai Road, while Disney unveiled its global flagship in Lujiazui and Legoland will open in Putuo. RENT LEVELS EDGE UP AS INVESTMENT ACTIVITY INCREASES • Core area ground floor rents increased by 1.9% q-o-q, to RMB 52.3 per sqm per day, while non-core rents rose 1.1%, to RMB 20.6 per sqm per day. Strong rental growth was observed in both markets by successful malls undergoing tenant adjustment. Ivanhoe Cambridge and APG invested USD 920 million in Chongbang, a developer renowned for its lifestyle malls in Shanghai. FOUR NEW PROJECTS OPEN IN CENTRAL AREAS • New World Daimaru Department Store, anchored by luxury brands, and three mid-range malls – Crystal Galleria, Star Live Plaza and Xinlin Station – opened with a total GFA of 366,000 sqm. Vacancy rose to 11.5% in the Core area, but decreased to 7.5% in the non-core area, as several malls introduced entertainment and experience-oriented tenants on the upper floors. OUTLOOK: INTENSE COMPETITION EXPECTED IN NONCORE AREAS • Ongoing caution by luxury retailers will contrast with stable expansion by fast fashion and F&B brands, while landlords increasingly covet child-related brands. More than 20 noncore projects are slated to open by end-2016, and malls with inexperienced landlords in saturated areas will have low bargaining power. Rental growth will be bolstered by premium brands expanding to mature malls in key submarkets.

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Note: Singapore retail refers to shopping centres, Orchard Road, District 9 Source: JLL Research, 3Q15 HIGHLIGHTS FAST FACTS MATURE MALLS IN PRIME LOCATIONS ARE OUTPERFORMING • Retail sales increased y-o-y in April and May and this has helped with retailers’ confidence. Despite the challenging operating environment due to a restrictive foreign labour policy and falling tourist arrivals, a substantial number of new store openings occurred from a variety of retailer categories, including F&B, fashion and beauty. CAPITAL VALUES SOFTEN AMID CAUTIOUS INVESTOR SENTIMENT • Investment activity was tepid due to the lack of new strata retail supply, softening capital values and weak economic growth. Overall mall rents corrected further, albeit at a slower rate. Despite strong occupier demand for established malls, small shopping centres in non-prime locations witnessed weaker demand and falling rents. A LACK OF NEW COMPLETIONS KEEPS VACANCY TIGHT IN PRIME LOCATIONS • New supply remained limited with only a few small shopping centre additions in the Primary and Suburban submarkets. Take-up was relatively slow, as retailers appear cautious about opening in new malls. Overall vacancy remained tight. Substantial space closed for renovations in Tiong Bahru Plaza, The Centrepoint, Holland Village Shopping Centre and Compass Point. In secondary locations it is envisaged that vacancy rates will rise. OUTLOOK: LIMITED SUPPLY LIKELY TO UNDERPIN STABLE OCCUPANCY LEVELS • Several new openings are slated in the next 12 months in the Marina and Suburban submarkets, but the lack of Core area additions may keep occupancy levels stable. Recent interest rate rises may affect consumer spending power while also discouraging investments, and rents and capital values could soften in the near term.

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Note: Sydney retail refers to shopping centres, CBD Source: JLL Research, 3Q15 HIGHLIGHTS FAST FACTS CORE AREA LEASING REMAINS STRONG • Demand for super-prime retail space remained strong. Two new leasing commitments, a Microsoft flagship store at Westfield Sydney and a Mimco store at MidCity, both offer Pitt Street mall frontage. Meanwhile, COS leased space for its second Australian store at 5 Martin Place in the CBD. INVESTMENT VOLUMES MORE THAN DOUBLE • Approximately AUD 515 million of retail assets were transacted in 2Q15 in New South Wales, up from AUD 253.7 million in 1Q15. The largest was the sale of Pacific Square for AUD 137 million. Yield compression was recorded sector-wide, notably in the Neighbourhood and Bulky Goods sub-sectors. SUPPLY ADDITIONS PICK UP • In 1H15, 133,100 sqm of completions were recorded, compared to 134,600 sqm in the 2014 calendar year. The AUD 475 million redevelopment of Westfield Miranda completed with a 98% precommitment. Despite strong leasing demand, the CBD vacancy rate rose to 4.5%, up from 3.1% at the end of 2014. OUTLOOK: INTERNATIONAL RETAILER EXPANSIONS TO CONTINUE • New mall completions are expected to peak in 2015, with around 233,700 sqm of new supply anticipated by year-end. Low to moderate rental growth is forecast in Sub-regional and Neighbourhood centres, and further yield compression is likely in the Regional, Sub-regional and Neighbourhood sub-sectors over the next 12 months.

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Note: Tokyo retail refers to High Streets, Ginza Source: JLL Research, 3Q15 HIGHLIGHTS FAST FACTS ROBUST RETAILER DEMAND AND STRONG CONSUMER SENTIMENT • Three consecutive quarters of consumption growth and continued demand from inbound visitors boosted retail sales. Department stores recorded strong duty-free goods sales, and luxury brands and F&B operators sought new stores in better locations. Notable new openings including Feiler’s Ginza flagship, plus Stella McCartney, Sonia Rykiel and Versus Versace stores in Aoyama. RENTS CONTINUE TO RISE AS VACANCY TIGHTENS • Rents averaged JPY 73,945 per tsubo per month, increasing 1.1% q-o-q, and 8.2% y-o-y. Despite firm rental growth observed in Ginza, the pace of growth moderated compared to 1Q15. Capital values increased 7.6% q-o-q, and 28.7% y-o-y, despite slowing rent growth as cap rates compressed amid growing investor interest and limited availability of assets for sale. THE SCARCITY OF AVAILABLE SPACE PERSISTS • The Japanese capital did not welcome any new supply to the market. Vacant space continued to be very limited amid strong demand and no new completions. OUTLOOK: CAP RATE COMPRESSION MAY PUSH UP CAPITAL VALUES • Retail market conditions are expected to remain healthy given positive consumer sentiment and growth in visitor arrivals. Upward pressure on rents is expected because of a tight demand and supply balance. Should low interest rates persist, cap rates may compress further and accelerate the growth of capital values.

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