Local shops succeed amidst lesser consumer spending

Essentials' sellers leverage community ties, flexible leases for success.

In the wake of rising prices across Asia, shifting consumer behaviour drives the success of local shops while larger shopping malls face declines in foot traffic. 

CK Lau, Colliers’ Managing Director for Valuation & Advisory Services for Asia, said that local shops, typically small, independently owned retailers in neighbourhoods, have a strong local customer base. This captive market base, especially for stores like grocery outlets providing daily necessities, allows them to thrive. 

He emphasised the importance of flexibility and strong community relationships that enable these retailers to adjust rapidly to market changes and consumer needs.

Lau discussed the variable impact of inflation across different Asian markets. "The inflation rate has generally decreased across Asia over the past year, yet the impact varies significantly by region," he noted. 

India, for example, experiences higher inflation rates close to 5%, while Hong Kong and Japan maintain more stable levels around 2%. China has maintained an exceptionally low inflation rate, occasionally dipping into negative territory, while other nations like Indonesia, Korea, and Singapore see moderate inflation levels around 3%.

When asked about the future of the retail sector, particularly in terms of capitalization rates, Lau provided a nuanced view based on local market conditions. "In China, we expect cap rates to remain stable due to increases in domestic retail sales and tourism," he said. 

Meanwhile, in Japan, the influx of tourists and a weakening yen are seen as positive influences that could lower cap rates further. Conversely, in Manila, the retail market remains robust against the growing e-commerce trend, thanks to a strong cultural preference for in-person shopping and dining experiences.