Hong Kong retail rent slump will last until 2017

The current Hong Kong retail rent slump will continue “until at least 2017,” real estate services company CBRE says in a new report.
The CBRE Hong Kong Retail MarketView Q1 2016 report reiterates earlier predictions that high street shop rents will continue to decline by 10 per cent to 15 per cent in 2016.
But it is not all bad news: shopping centres appear relatively immune to rent declines, according to CBRE.
“Shopping centers will be less vulnerable to the downturn as retailer demand remained strong [in Q1] for malls with higher footfall,” the report concluded. “Retailers were also attracted by themed events/promotions offered by landlords.”
As previously reported, retail rents in Tsim Sha Tsui will fall more than usual with more leases to expire this year.
“The wealth effect supporting local consumption growth in recent years is fading as stock and residential prices are falling,” said Joe Lin, executive director, retail services, with CBRE Hong Kong.
“More prudent local spending coupled with the ongoing decline in tourist arrivals have further hit retailers’ demand for space in the last quarter. We expect the trend to continue in Q2, which may further weaken retailers’ confidence, especially for prime street shop occupiers.”
Against a background of a 13.6 per cent year-on-year decline in retail sales in Hong Kong for the first two months of this year – the biggest drop since 1999 – retail rents in core locations declined by 5.4 per cent quarter-on-quarter and by 7.5 per cent in Tsim Sha Tsui. Rents in Central fell by 4.6 per cent, in Causeway Bay by 4.9 per cent and in Mong Kok by 3.3 per cent, according to CBRE’s data.
The company said the despite weak luxury retail sector performance, a few top-end jewellery brands took advantage of lower rents to sign new leases for prime street shops.
“Ultra-luxury brands are under comparatively less pressure as high-net-worth customers can still afford their products,” the report said.
“Some of these niche retailers are looking to take advantage of falling rents to expand on prime streets.”
During the quarter, Nirav Modi and Mikimoto leased space in 1881 Heritage in Tsim Sha Tsui, space previously occupied by Emperor Watch & Jewellery.
F&B operators have been less affected by the downturn, and leasing demand from mid-range retailers also remained firm in the first quarter.
“Folli Follie leased a 2700 sqft (251 sqm) shop on East Point Rd in Causeway Bay, its third new lease in the past 12 months. Elsewhere, mass market fashion brands including Forever 21 and 6ixty 8ight each leased space for their flagship stores in Mong Kok. However, retailers in general remained very cautious towards taking on new spaces,” the report said.
One reason for that may be that high street landlords have further softened their stance towards negotiations over rent during the first quarter.
“Many are now willing to accept reduced rents, even for renewals,” said the report.

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