Retail is the standout category in an otherwise declining Hong Kong real estate market according to a research report from realtor Cushman & Wakefield.
In its regular Hong Kong and Asia Pacific Property Market Forecast, Cushman & Wakefield said while the commercial office market is heading for a rental decline of five to 15 per cent, retail continues to surge, largely due to the influx of foreign brands into Hong Kong’s prime street locations.
It predicts increases as high as 35 per cent in lease renewals this year.
“The local economic foundation remains solid and Mainland visitors are flocking to Hong Kong for luxury goods,” explains Michele Woo, senior director, retail transaction services of Cushman & Wakefield (Hong Kong).
“Therefore it is anticipated that the retail market will continue to expand in 2012, while brands impacted by the European sovereign debt crisis will also establish a footprint in Hong Kong.”
According to data provided by the Hong Kong Tourism Board, Hong Kong visitor arrivals reached 41.92 million last year, with Chinese mainland visitors accounting for 28.10 million of them. Gross retail sales reached HK$400 billion (US$51.57 billion), indicating a very strong market.
Cushman & Wakefield predicts renowned international retailers will be “in fierce competition” for favourable locations in key retail areas.
“Landlords will soon begin to negotiate with tenants on leases expiring in the second half of 2012 and stand to benefit from the large increase in rents since 2009. Compared with 2011, prime street locations and other slightly less prime locations will see rents rise by 25 per cent to 35 per cent and 15 per cent to 20 per cent, respectively,” the report said.
“Recent notable large-scale transactions include the leasing of the ground and first floors in Asia Standard Tower by LAB, owned by Lane Crawford. The monthly rent amounts to HK$3.5 million (US$451,000) and the previous tenant was Chinese Arts & Crafts.”
Meanwhile, food and beverage operators remain active in the market and continue to fight for prime locations on main streets.
Dennis Lau, director, retail transaction services with Cushman & Wakefield (Hong Kong), said, rents in the fourth quarter of 2011 rose slightly to a record high.
“Rents in Causeway Bay and Tsim Sha Tsui have risen by around 10 per cent year-on-year. Some tenants had no alternatives but to pay higher rents to stay in the same location, or have moved to non-prime retail districts or higher floors to continue their business.”
Lau said the rapid increase in wages and the price of food ingredients further boosted the operation costs of F&B outlets. He expects that due to the expectation of a slight slowdown in global economic growth in 2012, consumers will become more cautious in their spending.
“Large-scale layoffs will also affect citizens’ willingness to consume and dine out. However, mainland Chinese visitor spending will continue to grow. This can offset the impacts of rises in rent, wages and food ingredients on F&B operators.
“Rents in key retail areas will see growth of 10 per cent to 15 per cent in 2012.”