There has been continued economic growth and lower unemployment recorded in the first quarter of 2021. Hong Kong’s economy has rebounded with a 7.8% YOY growth, posting an 11-year high and ending the prolonged contraction since the third quarter in 2019. Unemployment fell to 6.8% when comparing the period between January and March, and December and February, the first decline since November last year. Given the signs of gradual economic recovery, our experts Cynthia Ng of Retail Services and Niall Rowark of Office Services have seen a slight rebound in the retail and office real estate sectors. Read on to find out more from their on-the-ground observations.
Retailers leveraging the rental decline in second-tier high streets for expansion
The YOY retail sales for March 2021 have increased by 20% despite the market seeing several large-size vacancies available on first-tier high streets in the four core retail districts. There are also a number retailers expanding their footprint, which includes lifestyle, F&B and convenience stores by taking new leases at declining shop rents on second-tier high streets attached to the first tier in core districts.
At 47 Haiphong Road in Tsim Sha Tsui, a 550 sq. ft. shop has been newly leased to 7-Eleven for 65% lower than the previous rent which was with an occupier that had been in that space for over eight years. It is also the first convenience store to return to Haiphong Road since 2011. In addition, at 53-55 Haiphong Road, a popular Chinese pastry called Imperial Patisserie has taken a new lease for a 1,800 sq. ft. shop, which is 80% lower than the previous lease.
Despite more lifestyle brands taking over first- to second-tier high streets, the prime address of Canton Road has not seen much change as most of the shops are owned by large developers and landlords with various key marketing campaigns and promotions used to sustain sales during this time. Hence, the luxury and international brand mix will sustain on Canton Road.
Increasing leasing activities signaling market rebound
Whilst it is no secret that transaction volume in the market has been significantly low since the beginning of 2020, we have begun to see an uptick in activity over the past four months. In the first quarter of 2020, there was an average of just over 30 new office transactions per month which was a result of social unrest and COVID-19. Compare this to the first quarter of 2021, and we have seen an average of just over 110 new transactions per month, and it is clear to see that activity is returning to the market.
Bank Julius Baer and Manulife are the two biggest names to transact in 2021 – the former confirming a 91,000 sq. ft. relocation to Swire’s new asset, Two Taikoo Place, and the latter signing on 145,000 sq. ft. at International Trade Tower in Kowloon East. If these two transactions are anything to go by, we should continue to see market activity increase, and the recovery of Hong Kong’s real estate market to begin.