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logistical problems in building projects. Recently eased foreign-investment rules promise to enhance participation by global retailers in shopping-center developments.


Southeast Asia With little free space, Singaporean construction tends to


be dominated by refurbishment and renovation. The nation’s mature economy is experiencing moderate expansion and inflation, so construction costs, while high by Asian standards (currently S$3,000-3,300 in large shopping centers), are growing slowly. However, higher growth rates are being experienced in


Malaysia and Vietnam. Malaysia’s increasingly affluent middle-income consumers are boosting demand for new retail in areas such as the Klang Valley, which has upwards of one million sq m of new shopping-center space being built. Its economy is expanding at 5% per annum, so continued strong retail growth is set to continue. Retail construction costs are currently MYR3,600-3,800 for neighborhood centers and MYR4,200-4,500 for malls. Vietnam’s retail market is immature, but growing


quickly (16% in 2012). Increased urbanization makes Vietnam a strong retail prospect. Demand for international brands is helping to underwrite much of the new shopping- center development. Wages are low (currently VND 130,000-230,000 in hourly labor costs), but will grow in line with the nation’s development in manufacturing, especially vehicles and hi-tech components.


China Despite signs of slower growth, China has the largest


pipeline of construction worldwide. Retail construction costs varied widely (CNY3,800-5,000 for neighborhood centers, CNY5,000-7,000 for large centers) in 2012 and are estimated to grow at approximately 5% for 2013. According to recent CBRE research,4 up to half of the


total volume of shopping centers under construction worldwide is in China. Chengdu has more shopping-center space under construction than Western Europe. Tianjin, Shenyang, Chongqing, Wuhan and Guangzhou are not far behind. China is also still expanding its infrastructure, power, road and rail networks and opening up new residential cities. This creates demand for materials and labor, resulting in overall costs increasing. By progressively opening up new markets, employee


costs can be held down by drawing from the local area, where previously the labor force worked in rural occupations. However, the coastal cities of the East are becoming more expensive and construction labor is getting


harder to source there. For 2012, China as a whole saw its hourly labor costs rise 10%—the only nation listed in Table 5-3 to witness a double-digit upturn.


East Asia Retail construction markets in South Korea and Japan


are still subdued. South Korea’s economy has performed strongly since the GFC, but manufacturing and engineering are the predominant growth sectors rather than property construction. Construction costs, while increasing at close to 3% with rising wages, are not out of control. For several years, the Japanese economy, while


extremely large, has barely grown, and consumption has been static. A new policy, “Abenomics,” is designed to reflate the economy by quantitative easing, lowering the value of the currency, and boosting consumer spending. This should eventually provide more opportunity for retail growth. Currently there are few new retail projects but refurbishment of aging centers continues. Construction costs are expensive but stable, with the falling currency offering more opportunities to overseas investors.


Australia An overvalued currency and high levels of construction


in a booming natural-resources sector make Australia an expensive place to build (currently A$1,800-2,000 for neighborhood centers). Labor costs are some of the highest in the world (currently A$40-70). However, the strong currency makes imported


materials and equipment cheap. Now that the construction of natural resource projects is slowing down, construction costs for retail projects are steady. Wages are still expected to increase; however, the tender market is competitive and there is plenty of spare construction capacity. Expect favorable costs as contractors struggle to win work. The new-housing sector in Australia is subdued, so new suburban shopping centers are few and far between. Recent interest-rate cuts and a downward trend in its currency are likely to boost housing and land subdivision, which will eventually stimulate new-center construction. However, aging centers and intense competition among the retail majors mean that aggressive refurbishment plans are currently underway.


Conclusion Local conditions, material costs, and expenses


associated with imported materials and equipment have resulted in construction costs—including for retail—rising markedly in emerging markets such as China, Eastern


4 Neville Moss, “Shopping Centre Development: The Most Active Cities Globally,” CBRE Global Viewpoint, April 2013, pp. 1-2, retrieved August 21, 2013.


INTERNATIONAL COUNCIL OF SHOPPING CENTERS 25 6 RETAIL PROPERTY INSIGHTS VOL. 20, NO. 2, 2013


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