ASIA – Prime retail will outperform office in Asia Pacific gateway cities in 2013 as international investors return to the region and consumption outpaces corporate occupier demand, suggests a report from Knight Frank.

The nine-city study – covering Beijing, Hong Kong, Jakarta, Kuala Lumpur, Seoul, Shanghai, Singapore, Sydney and Tokyo – reported retail rents in Beijing at 3.6% despite a five-year peak in supply.

In Shanghai, prime retail rents are expected to grow by 10-12%, with an increase in large-scale transactions as a result of retailer expansion. 

While there is some indication of the likely impact of global economic uncertainty – for example, in a slowing of the upward trend in retail rents in Seoul – retailers are expected to expand in core and non-core locations buoyed by continued strong Korean private consumption.

Even in Sydney, afflicted by weak consumer sentiment as a result of uncertain job security, food-based retail has performed relatively strongly. 

Central business district retail has also trended upwards as a result of demand from high-end international tenants.

The regional exception is Singapore, where government restrictions on employing overseas workers have provoked retailers to postpone planned expansion.

Despite renewed investor interest as a combined result of euro-zone destabilisation, US avoidance of the fiscal cliff and an upturn in Chinese economic activity, office has lagged behind retail.

In Beijing, despite low vacancies (3.8%) and limited supply, prime office rent growth is close to zero – an indication of a mid-term peak, according to the report.

Meanwhile, in Shanghai, rents will fall to 3% this year, while prime office prices will increase 5%.

"In view of the current outlook for both the American and European economies," the report said, "it is unlikely that [multinationals] will be looking to Shanghai for large-scale business growth and expansion."

Meanwhile, weak demand from Hong Kong's financial services sector will bring down prime office rents in the area by 10% this year – albeit a lower decline than last year's – as non-prime rents increase by as much as 5%.