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Asia shopping malls: The 'must-have' investment?

Shoppers at the ION Orchard Mall, in the shopping district of Orchard Road, Singapore.
Andrew Watson | Lonely Planet Images | Getty Images
Shoppers at the ION Orchard Mall, in the shopping district of Orchard Road, Singapore.

Shopping centers in Asia have become the latest essential item on retail investors' shopping list, according to international property firm Jones Lang LaSalle (JLL).

In a report published on Wednesday, JLL said improved consumer confidence and continued spending in Asia has led to an influx of foreign capital flooding the retail investment market in recent times.

"Shopping centers are the latest 'must have' for investors, who are targeting Asia in a bid to benefit from the region's growth and ever-increasing consumer confidence," the company said, adding that Asian billionaires have now turned their attention from 'trophy hotels' to shopping malls and flagship retail stores.

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This latest trend comes against a backdrop of a blow-out year for retail investment in Asia, as turnover totaled $21.17 billion in 2013, a 41 percent increase on 2012, according to JLL.

The property firm said the strong year was fueled by robust consumer spending in Asian cities, despite slower growth in China and worries about the impact of Federal Reserve tapering on emerging markets.

Competition for retail investment is fierce said its report, as there is plenty of fresh capital targeting the sector, from local high net worth investors to global sovereign and pension funds.

The report gave the example of The Knightsbridge mall on Singapore's Orchard Road, a major shopping district in the Southeast Asian city state. The mall was bought last year by Bright Ruby Resources - a private Chinese investment company - for $921 million.

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Furthermore, private equity funds raised for exclusive investment in the region are also a dominant force, particularly for riskier assets, the report pointed out.

"Buyers will increasingly look to invest in assets that stretch their comfort levels, a phrase growing in popularity is 'they're 'moving up the risk curve'," said David Raven, lead director for retail investment at JLL.

JLL's Raven pointed out that the market for shopping centers in Asia was distinctly a sellers' market, and as a result there was likely to be an acute shortage of investable stock in the coming year.

"On the supply side there's very little stress in the system so the only motivations we envisage for people choosing to sell are either going to be maturing equity funds or those taking a proactive route to crystalize profit," he added.

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While Malaysia has proven to be the hot spot for shopping center purchases this year, due to high levels of government infrastructure spending, Raven highlighted Japan as a retail market to watch this year.

He said investor focus would return to the world's number three economy again soon, despite the recent concerns over the success of Abenomics - the economic policies of Prime Minister Shinzo Abe.

"Investor demand is going to focus on Japan again. This has been helped by the devaluation of the yen, the tick up in economic growth, the spread of growth beyond Tokyo and the major cities, plus investors again recognizing the sheer size of the economy and the wealth of Japanese citizens," he added.