As retail spending continues to rise in Hong Kong – largely off the back of increasing tourist numbers from mainland China – rental rates are increasing in tandem.
A proliferation of foreign brands new to Hong Kong, or seeking increased presence in key shopping precincts, is adding to the rent pressure as there is more demand than quality space.
Cushman & Wakefield, the world’s largest privately owned real estate services firm, today released its second quarter trends for the Hong Kong retail leasing market and projections for the remainder of 2012.
The company says that although sales growth of some high-end and luxury goods appears to be moderating, the local retail market is still expanding “at a robust rate”.
“International fashion and luxury brands are continuing to penetrate the local market as a platform to mainland consumers and to supplant lost revenue from stagnant markets in the west,” the company said in a statement.
One example of retailers’ positive outlook on the market was a recent lease renewal by Longines for a 900 square foot shop along Russell St in Causeway Bay at a monthly rent of HK$1.5 million, roughly triple the amount they were previously paying.
Additionally, another watch shop agreed to take over the 1600 square foot space leased by Omega in Hong Kong Mansion in Causeway Bay for approximately HK$2.0 million per month, up from the HK$900,000 per month paid by Omega.
Along with strong leasing demand and rapidly rising rents, prices of prime retail property have continued to skyrocket. In May it was reported that a 200 square foot shop along Percival St in Causeway Bay changed hands at a new record unit price of HK$1.0 million per square foot. The shop is tenanted by a luxury handbag reseller paying a monthly rent of HK$160,000.
Weakened external economic conditions remain intact and have led to decelerating consumption and export growth. In May, retail sales expanded by 8.8 per cent from a year earlier, the lowest increase since September 200, excluding from Lunar New Year months. While the slowdown in growth is attributed to a decline in the increment of mainland arrivals, it is also reflective of the slight drop in demand for ultra-luxury goods such as high-end watches and jewellery. Total tourist and Mainland arrivals expanded by 12.7 per cent and 19.4 per cent year-on-year in May, respectively.
Michele Woo, senior director, retail, with Cushman & Wakefield Hong Kong, predicts that during the remainder of the year, retail sales growth will moderate to between 10 per cent and 15 per cent due to global economic challenges.
“Retailers are not likely to deviate much from recent expansion plans and will aggressively compete for limited prime street shop supply as they enter into and expand within Hong Kong, providing for further rental appreciation. Although rental growth will temper slightly as the market cools, we still anticipate that prime street shop rents will likely rise by a further 10 per cent in second half of the year.”
