8 May 2012

According to recent reports by Colliers International, while the residential, office and industrial sectors in Hong Kong are expected to see downward adjustment pressure amidst global economic uncertainties, the local retail property sector is the exception with an uptrend tagged to its outlook in 2012.

In Colliers’ Retail Market Research and Forecast Report, the average ground-floor retail property rent increased 5.3% quarter-on quarter in 1Q 2012 in the key shopping districts - Central, Causeway Bay, Tsim Sha Tsui and Mong Kok. Over the next twelve month, retail rents are projected to see a further growth of 12%.

“Shop rents at individual prime street segments currently range from HK$1,100 to over HK$1,200 per sq ft per month, which is more than 300% over ten years ago,” said Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International. “However, the sharp rise of shop rents in these key shopping districts is not representative of the entire picture of the overall retail market in Hong Kong.”

Explaining this in detail, Lo said that the total value of retail sales has increased by over 130% between 2002 and 2012. Breaking down into retail categories, the retails sales value of supermarket, mainly driven by local consumers’ spending, totalled HK$3,883 million in Feb 2012. Compared with the monthly average of 2002, it increased by 90%, of which the growth is more in line with the overall retail sales value during the same period of time.

In the category of jewelry, watches, clocks and valuable gifts - which are luxury goods particularly favoured by mainland Chinese visitors - the retail sales value surged by 390% over the past 10-year period, where the growth is much more significant than the overall retail sales.

“The boom of retail activity in Hong Kong is very much leaning towards luxury goods, particularly since the implementation of the Individual Visit Scheme (IVS) in 2003. International retailers of jewelry,
watches and fashion labels are willing to pay exorbitant rents to secure limited prime retail properties in order to capture some of the mainland Chinese visitors’ splurge on luxury goods. Their action is a major reason why premium rents in prime retail districts are able to sustain till today.”

Helen Mak, Director of Retail Services at Colliers International Hong Kong, noted that this current phenomenon of increasing rents amidst acute supply-demand imbalance might eventually end up costing Hong Kong its regional competitiveness.

“International brands’ enquiries on their expansion or penetration plans in Hong Kong have been positive. However, prime ground-floor retail units are extremely limited in supply while popular shopping malls are at 100% occupancy,” shared Mak. “Thus, after hitting multiple dead ends, some retailers start to lose patience when they realise their plans cannot materialise after waiting for one to two years. Some individual retailers, who originally planned to first establish their base in Hong Kong prior to entering the China market, have instead skipped the territory and opened their first flagship stores in China.”

It is clear, from Mak’s comment that amidst significant demand-supply imbalance, sustained interests by brands and capability to capture mainland Chinese visitors’ spending are no longer a guarantee of success for Hong Kong.

Besides the above, Hong Kong also faces a barrier when it comes to supply of retail space at prime locations, as sizes of many ground-floor retail units are not big enough to meet requirements on flagship stores set by a number of international brands. “Coupled with the highest prime retail rents in the region, some retailers may shift their interests from Hong Kong to other locations, such as China and Singapore, where their shop size and location requirements are met much easier and at lower rents,” said Mak.

On the other hand, retailers or brands that opt to remain in Hong Kong are more flexible in their location preference, and are willing to explore streets close to first-tier locations with emerging popularity in the marketplace - such as Wellington Street in Central and Kai Chiu Road in Causeway Bay.

On the supply front, some individual shopping malls have started to seek ways to break through the current bottleneck by restructuring their trade mix across different floors in order to provide low-floor spaces with eye-catching shop frontage for retailers with specific interests, like the opening of flagship stores.

In order to maintain Hong Kong’s competitiveness in the long term, the provision of more quality retail properties is essential to fuel the continued growth of the retail property market. The West Kowloon Cultural District, where retail elements will be supported by nearby entertainment, residential and office clusters, is a good example and a feasible path to a new era of success for Hong Kong’s retail market.

Myanmar