Retailers with international ambitions must adapt to local market needs if they are to reap the rewards across global cities, according to Knight Frank which today issued Global Cities : The 2016 Report.
This year’s report examines the future of real estate in the world’s leading cities and how retail occupiers can make the most of the increasingly global market. The four key options for overseas market entry include:
- Organic expansion;
- Acquisition of a local operator;
- Collaboration with a local player; or
Although, each option comes with its own level of financial risk and reward, Stephen Springham, head of retail research at Knight Frank, said: “Aborted international ventures invariably stem from a retailer rigidly trying to impose its domestic values on its new market, rather than tailor its proposition to meet local demands.”
The key incentive for retailers to make the global transition is growth. However, the global playing field is anything but even. The report shows that of the major global economies, the US holds the largest retail format sales per capita at $11,687m, whereas India sits at the other end of the spectrum with just $793m.
Similarly, the UK is the most structurally favourable market, with the proportion of modern versus traditional retail space split 97% to 3%. In contrast, traditional retail trade (e.g. markets) still dominate China’s retail landscape, accounting for 78% of retail trade and only 22% made up by modern channels (e.g. unit shops, food stores, malls and online). Although they may offer a much higher growth trajectory than mature markets, countries such as China and India are more volatile and the retail sector remains dominated by domestic operators.
Global Cities : The 2016 Report encourages investors who are looking to occupy retail space in emerging markets to bear in mind the multiplier effect, where the presence of one multinational brand can attract other brands and would be investors to the area.
Springham said: “The arrival of new entrants from abroad brings a series of holistic benefits. By bringing a sense of diversity, they lay down a competitive gauntlet, which gives impetus to existing retailers to upgrade their propositions in response.”
One example of a developing Global City is Nairobi, Kenya’s capital. It offers retail occupiers exciting growth prospects with approximately 1.8m sq ft of modern shopping mall space opening in 2015.
Over the next five years (to 2020), the United Nations is forecasting Kenya’s urban population will expand to 14.7m people, an increase of nearly 2.8m. This will fuel demand for modern retail provision. Accordingly a further 1.3m sq ft of modern retail space coming to completion in 2016 -2017.
Global Cities: The 2016 Report sets the context for investors by saying that five new cities, each the size of Los Angeles, will need to be built every year for the next five years to accommodate the expected 380 million new city dwellers. The report predicts that the number of people moving to cities over the next five years will be more than three times the current population of Japan, as they try to make the most of the economic advantages cities increasingly deliver.
Global Cities : The 2016 Report is available in full from www.KnightFrank.com/GlobalCities