Seoul's prime shopping mall rents inched up 0.2% in Q4 2020

Meanwhile, prime high street rents contracted -1.0%.

According to JLL, the consumer sentiment index tumbled to 89.8 in December on a m-o-m basis due to extended social-distancing measures as a result of the resurgence of the virus. In addition, retail sales growth was recorded at -0.9% in November, after recording 1.7% in September and -1.0% in October, m-o-m. Due to the cold weather, there was less footfall on high streets.

Due to social-distancing measures, same-department sales plummeted -1.0% in November, 7.8% in October and -2.9% September y-o-y. Department store sales rose sharply in October on the back of Korea Sale Festa. The latest record for Chinese tourists monthly visits reached 9,174, plummeting -98.2% on a y-o-y basis.

High street vacancy improved slightly over the quarter

No major supply was delivered to the market in 4Q20.

Shopping mall vacancy hiked by 40 bps over the quarter. Noon Square’s vacancy rate was up greatly by 3% q-o-q, lifting overall vacancy rate. On the other hand, high street vacancy dropped marginally by about 8 bps on the back of improved leasing activity in Hongdae. Notably, Footlocker resolved a sticky vacancy in Hongdae.

Large-scale hypermarket and shopping mall transactions close

Prime shopping mall rents rose 0.2% q-o-q, while prime high street rents contracted, recording -1.0% q-o-q. Offline retailers observed sales contraction from lost footfall. High streets faced more challenges with the cold weather, expensive rents, sticky vacancy and rising mall culture.

Investment yields for both shopping malls and high streets equally have increased by 25 bps, marking 4.75% for shopping malls and 4.17% for high streets. Samsung SRA sold four Homeplus stores to Hana Alternative Asset Management for total of KRW 832 billion in the quarter. PODO Mall, held by DWS Asset Management, was sold to Koramco Asset Trust for KRW 220 billion.

Outlook: Offline retailers to struggle until COVID-19 is contained

We may see a rebound in foot traffic with the anticipated slowdown of the spread of the virus in addition to warmer weather, although it may take a while to recover to pre-COVID levels. To compete with e-commerce players, offline retailers may adopt omnichannel strategies to improve sales.

There may be additional hypermarket deals closing in the next 12 months. Reportedly, Hana Alternative Asset Management plans to redevelop four Homeplus assets purchased this quarter for potential residential facilities. Therefore, we could see more value-add or opportunistic deals in the future.

Note: Seoul Retail refers to Seoul's prime retail market.