Imagine you lead the investment arm of a global property investment company. One day, your boss walks in. She wants you to find a site to build a new shopping centre. The brief is short; find a good location anywhere in the world that will make for a great investment.
You’re on the hunt for communities with spending power, rising incomes and a growing population. Where do you look?
For most people, London, New York City or Sydney might jump to mind. It’s a fair call. We are all drawn to the familiar. But being a bit more entrepreneurial, you’re hunting for regions that’ll net you higher rental growth, outsized capital returns and a tidy bonus for your trouble.
It might be slightly unconventional, but your mind turns to Asia, where incomes are growing, urban populations are rising, and demographic trends are all heading in the right direction.
Let’s look at how APN assesses the quality and prospects of a shopping centre.
Our job at APN isn’t dissimilar to the role your imaginary boss has asked of you. There’s a process to valuing a retail commercial property, starting with its catchment area.
This is the shopping centre’s sphere of influence. First, we want to know how many people live and work within easy driving distance of the new shopping centre. Then we want to understand their habits.
Are they affluent consumers or battlers? How many are Gen X’ers paying off a mortgage or millennials spending on fast fashion? Is migration increasing the population? Is the site near arterial roads and good public transport links?
These are important questions. If the demographics of your new development are poor, the retailers you attract, and the money invested in advertising won’t make it stack up (and you can forget about your bonus).
In my opinion, the demographic and economic trends in Asia make the chances of success higher than anywhere else.
Here’s a graph, showing the average annual foot traffic of major global listed property trusts’ portfolios, that neatly sums up my argument: