Savills reveals Hong Kong retail rents prediction for 2019

Hong Kong retail rents are expected to remain stable through this year, despite declining sales during the first two months.

Real estate advisor Savills says the Hong Kong retail leasing market posted a subdued performance last year and shopping mall rents rose modestly driven mostly by Harbour City (HK$102 million of retail sales daily in 2018), while street-shop rents flatlined last year.

Hong Kong retail sales over January and February recorded their first decline since February 2017, down 1.6 per cent. But Savills does not expect this to affect current retail rental rates.

“Causes of disruption in the retail market are appearing in many different forms from demographics to new technology and changing spending preferences,” said Simon Smith, senior director, research & consultancy, at Savills. “We expect 2019 to see stable Hong Kong retail rents in the absence of any major stimulus which would be necessary for robust growth.”

Savills said the new bridge and rail infrastructure projects have brought more day trippers from the mainland, and as a result, local pharmacies and multi-brand cosmetics chains continued to drive the leasing market over the first quarter of this year.

“In particular, the cosmetics sector is growing in both the local and international markets. After closing its flagship store in Mong Kok 10 years ago, cosmetics retailer Sephora re-entered the Hong Kong market by pre-leasing a 4000sqft store at IFC mall, near Zara. In the meantime, its local peer Sa Sa has been expanding in both Tsim Sha Tsui and Mong Kok.

Internationally, Hermes has announced a plan to launch their beauty collection in 2020.”

Savills predicts the silver economy is another growth driver.

“Noticing the retail needs of this growing consumer group, retailers like Shiseido, and shopping-centre landlords, are casting senior models in advertisements, offering discounted memberships and special classes for the “silver population” and the “soon-to-be-old” group.”

Nick Bradstreet, MD and head of leasing at Savills, said more retailers are putting a greater emphasis on quality and originality, and focusing on a rounded in-store environment. He cited Canada Goose’s cold room in its IFC shop as an example, along with Lululemon’s yoga classes and eyewear brand Gentle Monster’s unique stores designed by 60 artists, as examples.

“Retailers are also turning to digital platforms, KOLs and celebrity endorsements for promotion, rather than relying solely on mall landlords. These are the main drivers for future growth,” said Bradstreet.

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