Retail rent is projected to increase 9% in 2013

4 February 2013

Improved local consumer sentiment and continuous mainland Chinese visitors’ spending kept the Hong Kong retail property buoyant in 4Q 2012, according to the recently released Colliers International Retail Market Research & Forecast Report.

From September to November 2012, Hong Kong Tourism Board’s statistics showed that there were a total of 12.2 million inbound visitors which represented a growth of 16.3% year-on-year (YoY) and with 73% of the total coming from mainland China. This subsequently correlated to Hong Kong’s retail sales growth which remained vibrant, rising by 9.5% YoY in November 2012.

The report also highlighted that despite the global economic uncertainties, international retailers continued their expansion plans, albeit with a more cautious approach. Many new overseas brands remained keen on securing prime locations in Hong Kong to set up their flagship stores before continuing with expansion in China or the greater Asia in long run.

Case in point is the recent announcement of iconic brand Topshop’s opening in Hong Kong - a much awaited arrival – in Central. Even amid surging retail rents, the decision by the UK fashion brand to set shop in Hong Kong is a clear indication of the international retailer’s belief in Hong Kong’s potential in the long term.

In Hong Kong, Topshop will partner with LAB Concept, the new contemporary retail subsidiary of Lane Crawford. The highly anticipated store will occupy a prestigious corner site within Asia Standard Tower in Queen’s Road Central. With the expected opening in May 2013, the store will span two floors, including ground-floor level, of over 12,000 sq ft in total and enjoys prominent street frontage with international fashion labels in the neighborhood.

Helen Mak, Senior Director of Retail Services at Colliers International Hong Kong, who assisted Lane Crawford in securing this site, said, “Prime retail spaces in Hong Kong with such spacious size and significant street frontage is highly favoured by international retailers as they serve as a channel for image building in the local market as well as amongst visitors from the Asia region including mainland China who have substantial spending power.”

“Although there has been talks on a slowdown by the world's biggest high-end goods consumer, China is still very much a dominant player when it comes to luxury spending. Hong Kong is the perfect stepping stone for brands to establish themselves before venturing further to China,” she said.

With sustained demand from international retailers and the extreme lack of leasing retail property stock at prime shopping locations, retail rents continued to increase at the end of 2012. According to Colliers’ research, the average retail rent of street-level-shops on key street segments increased 1.4% quarter-on-quarter in 4Q 2012, albeit at a milder rate than the previous quarter.

Simon Lo, Executive Director of Research & Advisory, Asia commented that retail property owners were less aggressive in their rental demands as the slower retail sales growth throughout 2012 curtailed retailers’ business profits and hindered their ability pay soaring rents.

As the Hong Kong government’s restriction measures are in place in the residential market, a number of investors have changed to park their money in the commercial sector, which buoyed the sales activity of retail properties at the end of 2012.

The overall number of investment sales of retail units, which each valued HK$10 million or above, surged by 105% QoQ in 4Q 2012. Lo said that investors focused on second- and third-tier streets in core shopping areas, or look for investment opportunities in non-core districts, in 4Q 2012, given the limited stock available for sale in prime shopping locations. Retail property market also saw a return of short-term traders. Between June and November 2012, the number of retail property sub-sold before their original sales transactions were completed (i.e. confirmor sales) rose 67% YoY.

Looking ahead, Hong Kong’s retail market continues to see further growth potential with the support of the strong tourism performance, sustained demand from overseas retailers, an extreme lack of prime retail space, increasing household incoming and rising inflation. However, the uninspiring global economic conditions are likely to cause downside impact on the retail market. Thus, the average retail rent in Hong Kong is projected to increase 9% over the next 12 months, which is milder than the double-digit growth in 2012.

Colliers International | Myanmar 11/F, Units 10-12, Sule Square Office Tower, 221 Sule Pagoda Road, Kyauktada Township, Yangon, Myanmar​ | Tel: +95 9 314 916 78