Rents in Hong Kong's retail sector decline once more in Q1 2015

Amid continued weakness of retailer demand.

As rents fell 0.8% q-o-q in Q1 2015, retail market sentiment remained sluggish this quarter, with retail sales falling by 2.0% year-over-year (y-o-y) in the first two months of 2015.

According to a research note from CBRE, a structural shift in tourists' preferences towards buying more affordable mid-market products, coupled with the rising trend of mainland Chinese tourists to shop overseas resulted in weaker retail sales in certain sectors.

The period saw sales of watch and jewellery items decline by 15.9% y-oy, while sales of other consumer durable goods were down 15.15 y-o-y.

In contrast, demand for products more oriented to local shoppers remained stable, with sales of furniture and fixtures and supermarkets posting 8.9% y-o-y and 3.7% y-o-y growth respectively.

The tourism market remained robust in Q1 2015 in spite of spreading protests against Chinese shoppers in selected retail nodes near the border.

Total tourist arrivals in Hong Kong increased by 11.6% y-o-y in the first two months of 2015, following a rise of 12% y-o-y to 60.8 million in 2014.

Tourist from mainland China increased by 15.8% y-o-y in January and February combined, accounted for 82.1% of the total visitor arrivals.

Here's more from CBRE:

Growing opposition to the continued influx of mainland Chinese tourists has led to a debate over whether Hong Kong should set a limit on tourist arrivals.

At the same time, mainland Chinese tourists are already spending more prudently.

These trends combined to exert pressure on retailers catering predominantly to tourists and resulted in weak overall leasing momentum in Q1 2015, although the opening quarter of the year is traditionally a quiet period for leasing activity.

Very few large teasing transactions were completed during the quarter. The most notable was the leasing of a circa-4,000 sq. ft. GFA ground-floor shop in the Entertainment Building on Queen's Road Central.