As Hong Kong retail rents slump to levels not seen since 2003, retailers who appeal to domestic shoppers are beginning to have a stronger presence in the market.
According to retail real-estate professionals with property company Savills, brands in categories such as lifestyle products, health-related goods and affordable family-friendly chains are taking the opportunity to lease space in commercial districts across the city. They are taking over from retailers who appealed primarily to inbound tourists from Mainland China and elsewhere, before social unrest and the Covid-19 led to a record 11-month run of double-digit declines in retail sales in the city.
Jewellery and watch sales plummeted by more than 69 per cent during the first five months of this year.
Savills senior director, research & consultancy, Simon Smith, says that while prime street-shop and shopping-mall rents seem to have found a floor since their 2013 peak, this may only be temporary.
“Rising vacancy levels continue to plague the market with mid-range fashion retailers joining luxury retailers in rationalising store numbers, but rents appear to have stabilised for now.”
With many luxury and mid-range brands struggling to break even with the desertion of tourists, they are right-sizing their networks and closing underperforming stores.
“The market has endured a prolonged correction since 2013 but with rents now close to 2003 levels, landlords and tenants are beginning to embrace the new reality and accept new business models and a more creative approach to trade and tenant mix,” adds Nick Bradstreet, MD and head of retail leasing.
According to Savills’ research, the quarter-on-quarter decline in Hong Kong retail rents in the three months to June was about 1.7 per cent in prime streetfront sites and 0.8 per cent in shopping centres.
Retailers including Valentino, Tiffany & Co, Coach and Prada have already given up prime sites on Tsim Sha Tsui’s Canton Road and Causeway Bay’s Russell Street, two of the city’s most expensive commercial strips. Victoria’s Secret has closed its multi-story flagship nearby and MCM’s largest store, in Central, has also been shuttered.
More mid-market retailers including Swatch, SaSa, Lush and Gap have also rationalised their store networks.
But in their place, new brands are taking the opportunity to increase their street presence, typically brands targeting local consumers rather than mainland daytrippers and tourists.
“Local consumers are more focused on their “whole of life” needs, prioritising health and well-being, caring about their family and community, and valuing the local culture and sustainability,” says Savills in its quarterly review of Hong Kong retail rents.
Examples include Muji and Lululemon, which have both opened their largest stores yet in the city, at Telford Plaza and Harbour City respectively, and UK women’s activewear label Sweaty Betty, is opening its second Hong Kong store, at Causeway Bay this month. Japanese grocer Don Don Donki is opening two more stores, at Causeway Bay and Central, later this year.
Bradstreet and Smith say shopping-mall footfalls across Hong Kong showed signs of recovery during May and June as locals began venturing out again after Covid-19-related social-distancing measures were eased. A degree of pent-up demand may have helped the trend.
But rebounding local spending won’t be enough to help brands reliant on tourists, with Savills predicting vacancies on prime streets in traditional tourist districts will soon rise. Topshop, Gap and Adidas are all tipped as unlikely to renew their leases on Central spaces.
“The post-Covid outlook for Hong Kong’s retail industry remains very challenging,” concludes Savills. “Some structural changes in demand profile and market fundamentals are underway and both retailers and landlords need to adapt and constantly reinvent to stay relevant.
“A slower-than-expected recovery in the tourism market means that a more balanced approach to local consumers and mainland tourists is warranted moving forwards but the shopping preferences of locals and tourists are of course quite different.”