Asian Cities Report | Seoul Retail Savills World Research2H 2017 Korea Asian Cities Report Seoul Retail 2H 2017 savills.com.hk/research savills.com.hk/research 01 Asian Cities Report | Seoul Retail 2H 2017 GRAPH 1 First floor retail rents continuing growth of e-commerce. First floor rental increases in major Seoul Based on the Korea Appraisal Supported by the Korea Sale Fiesta (a nationwide government-sponsored retail districts, 2014−2016 Board (KAB) data in June 2017, 1/F rents in the top five retail areas for bargain sales period) and other events, 2014 2015 2016 mid-size buildings have shown a the sales of large discount stores, 5% divergent performance. Retail rents including duty-free shops and outlets, in Myeongdong and Gangnamdaero rose by 9%. In 1H/2017, convenience 4% recorded steady growth from 2014 to store and non-store retail sales continued their double digit growth. 3% mid 2016, but have recorded slight downward movement since 2016. 2% Meanwhile retail rents for Hongdae- Non-store retail Hapjung increased due to new Non-store retail volumes rose by 16% 1% recreational facilities and improved year-on-year (YoY) in 2016 and 13% infrastructure. in 1H/2017. Sales increases in food, 0% electronics and apparel contributed Average contracted rents in to the growth. The sales volumes -1% Myeongdong Gangnamdaero Garosugil Hongdae- Itaewon Myeongdong at the end of June were of online shopping malls operated Hapjung the highest in the city, according to by offline based retailers such as Shinsegae and Lotte group grew far Source: Korea Appraisal Board (KAB) KAB. Myeongdong is an extremely popular foreign tourist destination more rapidly than pure online shopping and attracts significant foot traffic, malls. due to the co-location of apparel Department stores GRAPH 2 and cosmetics flagship stores. Retail The national volume of department Balance of payments, 2010−1H/2017 rents in Myeongdong have steadily increased from 2013. However, the store sales rose by 3% to total area has seen a drop in visitors from KRW29.8 trillion in 2016, as operators Current account Goods balance Service account China since Q4/2016, due to the launched new branches and attracted 140 political environment between the two foot traffic via big discount events. 120 Regionally, the volume of Gyeonggi 106 countries and as a result, retail rents 99 100 have been negatively affected. Since Province sales increased by 11% YoY, 81 84 the Chinese government restricted supported by the Hyundai department 80 Chinese travel agencies from providing store in Pangyo and the Shinsegae 60 51 52 group tours to Korea on 15 March department store in Hanam. However, 40 36 2017, the number of Chinese tourists sales in Ulsan province fell by 6% due US$ billion 29 19 to a sluggish shipbuilding industry. 20 has declined and rents have fallen 0.4% compared to the previous Hyundai Premium Outlet launched in 0 quarter. Songdo in April 2016, contributed to -20 a 6% decline in department sales in -40 Macro indicators Incheon. The total national volume of 2010 2011 2012 2013 2014 2015 2016 1H/2016 1H/2017 According to balance of payments sales in 1H/2017 declined by 3% from data released by the Bank of Korea the previous year. Source: Bank of Korea (BOK) (BOK), the current account stood at US$36 billion in 1H/2017, but the Duty free shops surplus was reduced by 30% from Sales revenues from duty free shops, the previous year as a deficit in the which depend on foreign tourists GRAPH 3 services segment rose sharply. This (especially from China), rose 30% from Retail sales by channel, 2014−2016 was also attributable to the reduction the previous year to US$10.6 billion in Chinese tourists and increased in 2016. Sales posted a compound spending overseas. annual growth rate (CAGR) of 17% 2014 2015 2016 from 2011 to 2016. 60 53 53 The expenditure-to–income ratio 50 declined from 78% in 2010 to 71% Despite the concerns surrounding in 2016, showing a conservative economic retaliation from China, 40 38 spending pattern given the household sales at duty free stores rose by 30 over 19% in 1H/2017. One possible 30 economy directly affects consumption patterns which are becoming more explanation for the unexpected KRW trillion 20 20 cost effective. outcome is the increase of daigou, or personal shoppers, who purchase 10 Sales by retail channel commodities overseas and resell 0 Total retail sales increased by 6% in them to customers in China. However, Convenience Department Supermarket Non-store retail Large discount stores store stores + 2016 and 4% in 1H/2017, compared to operators’ profit margins have dropped duty free shops+outlets the previous year. Convenience store as the commissions for daigou can be sales soared 18%, while non-store expensive, and the market has seen Source: Statistics Korea retail sales increased 16% due to the new entrants/license holders enter 02 Asian Cities Report | Seoul Retail 2H 2017 the field. Hanwha Galleria, a duty in an evolving retail marketplace. A GRAPH 4 free operator, requested the removal joint venture by Shinsegae Group’s Retail sales growth by retailer type, of their operating license from Jeju real estate development unit and Airport. Taubman Asia and partners, invested 2016−1H/2017, YoY KRW1 trillion to make Starfield Hanam 2016 1H/2017 20% Hypermarkets the first and largest entertainment 18% The sales growth of major shopping mall in South Korea. Starfield 16% 15% 14% hypermarkets (E-mart, Lotte Mart, Hanam combined their own brands, 13% Homeplus) declined slightly by 1% including Shinsegae Department Store, YoY to KRW52.9 trillion in 2016. The Traders, Electro Mart, PK Mart, Aqua 10% 9% dominant trend of online shopping and Field and Sports Monster, and then 6% 5% 3% the rise in single person households built the property as an entertainment, 3% 3% had a negative impact on hypermarket multi-complex shopping mall. sales. In 1H/2017, the total sales Shinsegae launched Starfield Goyang 0% volume remained the same as in August 2017, which includes an -3% -5% 1H/2016. extra 20% of non-shopping area space Convenience Department store Supermarket Non-store retail* Large discount stores stores + compared to Starfield Hanam. duty free Three major hypermarket operators are shops+outlets attempting to find alternative strategies Retail investment Source: Statistics Korea * The sales of non-store retail excludes online shopping sales by offline based retailers. to regain ground. E-mart, which has market the largest market share, has been In 2016, total investment trading restructuring low-profit stores. They increased from the previous year, as a have converted their Jang-an branch large number of assets were sold. NPS TABLE 1 into a ‘No-Brand’ store which carries and GIC were the major investors in only E-mart’s private labeled products. G Square in Pyeongchon. G Square New shopping mall and outlet development They will also focus on their Traders has a remaining 16-year master plans, 2017−2018 brand, a warehouse discount centre, lease, and includes a Lotte Cinema, and launch Gimpo, Goyang and Lotte Department Store and Lotte Year Brand New shopping mall Koonpo branches this year. Existing Mart. NPS also invested in Starfield Traders branch sales increased 15% Goyang, owning a 49% stake. This is Shinsegae Starfield Goyang Samsong in 1H/2017, while existing hypermarket the second time NPS has invested in performance has decreased 0.6%. a retail development project managed 2017 Incheon Terminal Shopping Mall Lotte Mart are increasing their footprint by a domestic corporation. KB AMC Lotte Goyang Wonheung Shopping Mall to improve competitiveness, whilst bought Lotte Mall in Eunpyeong, structured as a sale and lease-back, offering new customer experiences. Lotte Outlet Gunsan Their recent opening in Seocho with Lotte taking a 15-year minimum adopted the “groceraunt” (grocery lease term. Ulsan Upsquare, which is 2018 Lotte Lotte Premium Outlet Ulsan and restaurant) service, which cooks multi-let to large SPAs, a cinema and and serves the food immediately extensive F&B retailers was purchased Lotte Premium Outlet Yongin after buying it, in order to eat in the by M&G Real Estate. market. Homeplus, which recovered into profitability in 2016, will not launch Hypermarket transactions by individual Source: Savills Korea Research & Consultancy, Public information any new stores and is focused on investors also saw an increase improving their existing operations. in 2016. Ryukyung PSG AMC, purchased the Homeplus portfolio TABLE 2 Convenience stores (Seoul Dongdaemoon, Incheon Kaja, The sales volume of convenience Gyunggi Gimpo, Northern Suwon Major retail transactions, 2016−2017 stores recorded the most rapid growth and Kyungnam Kimhae branches) among other retail channels, soaring from MBK. In 2017, Richmond AMC Amount Year Building name (KRW bil) Seller Buyer 18% to KRW19.5 trillion in 2016. These purchased the Icheon Premium Outlet Lotte Mall Eunpyeong 430 Eunpyeong PFV KB AMC stores have turned their attention “Fashion & Kids Mall”. IGIS AMC purchased Homeplus Jeonju and MBK Homeplus Portfolio Ryukyung PSG to the sale of fresh foods, such as (5 properties) 644 Homeplus (MBK) AMC lunchboxes for single households. Hyoja branches, which are let for more G-Square City Retail Approx. Koramco IGIS AMC (GIC, 2016 Complex 750 (GS Retail) NPS, NHUF) Fresh food sales increased by 47% than 14 years. Vestas AMC acquired Upsquare 149 Upsquare PFV IGIS AMC (M&G) from the previous year. In addition, the the Homeplus Pyeongchon branch, (Angelo Gordon) IGIS AMC(NPS) number of stores increased (13%) and which has a 12-year remaining lease Starfield Goyang 770 Shinsegae +Shinsegae the price rise of cigarettes also helped period. Group Homeplus Pyeongchon 93 Alpha Asset Vestas Investment sales growth. In 1H/2017, sales were Management Management Koreit AMC up 14%.