2Q14 retail sales retreat 7% y-o-y

It continues to show signs of slowdown.

The retail sector continued to show signs of a slowdown with total retail sales declining by 7% y-o-y in 2Q14.

According to a research report from JLL, the decline was led by a 31.5% y-o-y drop in the sales of jewellery and watches, albeit off a high base of comparison caused by the spike in gold related sales a year earlier.

The changing profile and spending patterns of Mainland Chinese tourists also contributed to the slower sales growth, with more same-day (lower spend) tourists visiting the city.

Here’s more from JLL:

Despite declining retail sales, leasing demand in prime shopping locations remained largely intact.

Mass market retailers, supported by sustained local consumption and the changing shopping patterns of Mainland tourists, remained optimistic towards expansion.

Fast fashion retailer, Esprit, pre-leased three floors (17,944 sq ft) at Wings Building in Central for around HKD 2 million per month while Korean cosmetics brand, Sulwhasoo, reportedly pre-leased a 9,400 sq ft space at Silvercord for around HKD 2.9 million per month.

With the decline in retail sales being mainly due to a higher base comparison brought about by higher gold prices at the start of 2013, retail sales are forecasted to return to growth in 2H14.

However, headwinds remain for the sector. The possibility of the government imposing a quota on visitors from Mainland China, for example, has the potential to affect the market negatively.

On the positive side, international retailers, especially mass market retailers, remain keen on using Hong Kong as a springboard to enter the Mainland markets.

Against this backdrop, we retain our forecast for rentals of prime retail assets to grow in the range of 0–5% in 2014.

With holding costs remaining low and investors continuing to look for undervalued properties with value-add potential, we believe that capital values of prime retail assets should remain stable in 2014.