O Sole Macao

Four hundred fifty years after the Portuguese beat them to the punch in colonizing Macao, the Venetians would appear to be making a surprising comeback. Lately, a little Venice has risen on the eight-square-mile enclave.

Actually, it's a different empire with some serious gondola experience of its own — Las Vegas Sands Corp. — that is bringing Venice to Macao, a tiny, semi-autonomous Chinese province. Modeled on the Sands' Venetian resort in Las Vegas, the 3,000-room, $2.4 billon resort and convention center is the first of 12 mega resorts now planned for the Cotai Strip, a recently completed 1.8-mile long plot of manmade land that now connects Macao's two main islands.

In the short run, the outlook is good for The Venetian, says Andrew Ness, executive director of CBRE Research Asia. The 936,000 sq. ft. of retail space is reportedly 90% committed and the convention center is booked for its first 18 months.

Longer run, the Hong Kong-based analyst says the success of the Venetian and its sister resorts depends on whether they can transform Macao from a gambling resort to a convention center, the way Vegas did in the '80s. It's a crucial transition, in Ness's view, since conventions tend to lead to more stable revenue and longer hotel stays.

Ness believes that with 1.3 billion people on their doorstep in China — with millions more in Japan — Macao will find the convention business it needs to thrive. The real question is whether the infrastructure of the tiny enclave will be strong enough to support the growth from 12,400 hotel rooms to 48,400 hotel rooms, and the addition of more than 6.3 million sq. ft. of retail. “We're not saying these obstacles are insuperable,” he says. “We're just saying it's a challenge.”

Trouble in Paradise

South African REITs are getting restless. After three years of returns topping 34% annually, REIT executives are petitioning their government to give them the freedom to look for bargains overseas.

That might seem a bit counterintuitive, given the fact that South Africa was named the best REIT market of 2006 by Ernst & Young. South Africa's listed property companies (the local REIT equivalent) outperformed all 13 of the REIT markets it studied — and with the lowest degree of leverage — but investors say that the pickings now are getting slim.

New entrants in the market, including local pension funds and foreign investors, have driven yields down from 11% three years ago to about 6.5% now. Long-time industry veteran Marc Wainer, executive director of the oldest South African listed property company, Madison Property Fund Managers in Johannesburg, says that it's become difficult to find quality properties now at good prices.

If the rule against investing individual properties overseas does change, Wainer says his firm will be looking at emerging markets like Argentina, Brazil, and Eastern Europe. “Lots of people are running to China and India,” he says, “but I would rather be in places where we sort of get there first.”

Send me to Siberia

Once upon a time, no one asked to be sent to Siberia. But that may be changing — among Russian retail executives, at least. Although Moscow retail is still booming with shopping center cap rates of about 10% and tight lease rates, some adventurous developers are starting to look for opportunity across Russia's other 10 time zones.

Over the past 12 to 18 months, some developers have begun considering expansion to second-tier markets outside Moscow, says Christopher Peters, an analyst at Cushman & Wakefield in Moscow. “A lot of developers want to get shopping centers into regional cities,” he says.

One of the more adventurous is IKEA, which recently opened two 1 million sq. ft. MEGA Malls in Ekaterinaberg and Nizhny-Novgorod. Next, the Swedish furnishings giant plans to bring food courts and Scandinavian design to Samara and Kazin, two cities in Russia's central Asia.

The reason for the enthusiasm of IKEA and others is that Russian disposable incomes are rising rapidly. Total disposable income has risen from $247 billion in 2003 to $332 billion in 2006, reports Euromonitor, a European market research company. In fact, government statistics show that last year alone, average personal disposable income grew by 12.7%. While average income is still only $448 a month, some individuals fare far better and most surveys now classify 15% to 20% of Russians as middle class.

The top category for these young pioneers of shopping? Do-it-yourself remodeling stores similar to Home Depot.

Bennett Voyles is a veteran commercial real estate reporter and National Real Estate Investor's Paris correspondent. For questions or comments, e-mail benvoyles@yahoo.com.