Rents in retail sector plunge 6.8% in H1

Aggregate decline from peak levels at 23%.

In Hong Kong's retail sector, it has been noted that rents have come down 6.8% in 1H 2016.

According to a research note from CBRE, rents have also seen an aggregate decline of 23% from the peak levels. Rents in Tsim Sha Tsui plunged 10% in 1H 2016, mainly due to more expiries in TST this year than last year.

Further, retail sales continued to trend down in Q2 despite a decelerated momentum compared to Q1. Changing tourist spending patterns continued to affect sales of luxury goods. Sales of watch and jewellery fell by 18% y-o-y in April and May combined, remaining one of the major laggards of overall retail sales.

Leasing activity picked up with some brands committing spaces in strategic locations while some others relocating for cost-saving reasons. More short-term leases were witnessed in Q2. Also, landlords’ stance continued to soften, but with some major vacancies digested, rental pressure was slightly eased.

Here's more from CBRE:

2016 2H outlook: Wealth effect may continue to fade out as asset values fall. Meanwhile, the rising concerns over job security will also hinder consumption. Discounts offered by retailers in Hong Kong are inevitable to drive local spending.

RMB depreciation will further discourage mainland tourists to shop in Hong Kong, while stronger dollar will raise the attractiveness of shopping in Europe. Retail landscape transformation from luxury retailers to mid-range/mass market brands will continue. Rental downcycle is set to continue for the rest of 2016.

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