23 August 2012

Following buoyant rise over the past couple years, the local retail sales registered sign of abating in 2Q 2012. The total value of retail sales in May 2012 slowed to single-digit growth of 8.8% year-on-year (YoY), which was the slowest pace since September 2009.

Amongst different categories of retail sales in Hong Kong, the value of the sales of jewellery, watches and clocks, and valuable gifts comprised 22% of the total retail sales in May 2012. These types of high-end luxury products sold in Hong Kong remained mainland tourists’ favour due to quality assurance, tax difference and currency appreciation of RMB over Hong Kong dollar. However, this category in May 2012 also recorded the lowest retail sales increase since September 2009, which edged up only 3.1% YoY. This could be attributed to the weakening buying sentiment of the mainland Chinese visitors in the midst of contracting China economy.

Similarly, retail rents also experienced a slower growth in 2Q 2012. According to Colliers International’s Retail Research & Forecast Report 2Q 2012, the average rent of ground-level shops in the four core shopping districts – Causeway Bay, Central, Mong Kok and Tsim Sha Tsui - continued to see increase, but at a lower rate of 3.4% quarter-on-quarter (QoQ) in 2Q 2012 compared to 5.3% in 1Q. Amongst the four districts, rental growth of shops in Central was the highest at 4.1% QoQ during the quarter.

“Seeing demand outstripping supply in the core shopping districts, it was still a landlord’s market in 2Q 2012. Some tenants have to pay double rents for renewing their leases,” commented Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International.

Lo said that amidst tight supply and high occupancy in the first-tier streets, some overseas retailers are also seeking retail spaces in the second-tier streets where shopper traffic is increasing due to the positive spill-over from the first-tier streets. This drives strong increase in shop rents in the second-tier streets. In view of ambitious appetite of retail brands, the severe lack of sizable prime retail space is a bottleneck for sustainable growth of Hong Kong’s retail market.

Continued rising rents also fueled investment activity in the retail property market. The overall number and total consideration of retail property sales transactions, with a lump-sum consideration of HK$10 million or above each, leapt by 260% and 87% QoQ, respectively.

Given that retail rents are highly and positively correlated to retail sales performance, the slower retail sales growth could hinder landlords’ ability to raise retail rents in the near term. Nonetheless, further growth in retail rents are still seeing support by various factors including rising inflation, robust inbound tourism growth, increasing household income and limited retail space in the prime shopping locations. Over the next twelve months, Colliers International projects the average ground-floor retail rent in the four core shopping districts to rise 12%.

Myanmar