Retail property rent in traditional shopping districts up 7.4%

International retailers continued to outbid existing tenants to secure shops in prime locations in belief that Hong Kong is a stepping stone to inland Mainland China cities.

Hong Kong’s retail property leasing and sales market remained upbeat in 2Q 2011, according to Colliers International’s research and forecast report on Hong Kong’s Retail Market. In the past quarter, the leasing market saw sustained rising demand with skyrocketing rentals, while the investment market recorded double-digit growth in volume of sales transactions of HK$10 million or above.

The local retail market saw high demand for big-ticket items, with the sales of jewellery, watches and clocks and valuable gifts experiencing significant growth of 61.3% year-on-year (YoY), to HK$7.61 billion as of May 2011. Sales of other items, such as clothing and footwear (+30.1% YoY), electrical goods and photographic equipment (+54.1% YoY), and medicines and cosmetics (+17.2% YoY) also performed well. 

Given the vibrant domestic demand and visitor spending, as well as the bright prospect for retail sales growth, a growing number of international retailers have started tapping into this lucrative market. 

“Since Hong Kong acts as a stepping stone to inland Mainland China cities, big bloated international retailers continued to outbid existing tenants to secure shops in prime locations - Central, Causeway Bay, Tsim Sha Tsui and Mong Kok – in an effort to have a piece of the Hong Kong retail sales pie,” said Simon Lo, Executive Director of Research & Advisory Services, Colliers International Asia. “Retailers, especially those in the fashion industry, were aggressive in bidding for retail premises that provide flexible floor layouts and better brand image promotion." 

“With the current fierce competition from international retailers, local and smaller retailers are facing difficulties in locating suitable stores in prime locations, with the exception of local jewellery entrepreneurs who have gained substantial profits from Mainland Chinese customers and therefore have more upper-hand in the intensifying bidding war,” commented Lo.

Underpinned by the strong demand, retail rental growth momentum was observed across the board. The average rent of street shops in the traditional shopping districts, increased 7.4% quarter-on-quarter (QoQ) to a record high in 2Q 2011, following a solid growth of 8.1% in 1Q. It has surpassed the previous peak level in mid-2008 by 11.0%. 

First-tier streets such as Queen’s Road Central in Central and Russell Street in Causeway Bay continued to see double-digit growth, while average rents in second-tier streets such as Haiphong Road in Tsim Sha Tsui and Percival Street in Causeway Bay recorded a higher growth in 2Q 2011 than the previous quarter, according to a Colliers International report. 

Meanwhile, the retail investment market picked up strongly in 2Q 2011. The number of retail sales transactions at HK$10 million or above saw a notable growth of 44% QoQ in 2Q 2011. A batch of local investors continued to dominate sales market activity and they remain keen to purchase retail premises for long-term growth, considering the continuing relatively low interest rate environment. Meanwhile, average yields of quality retail premises in traditional shopping locations stayed below 2.9%.

Looking forward, leasing demand from brand-name retailers and jewellers will remain strong, although inflationary pressure on food prices acts as a potential dampener on food & beverage operators’ leasing demand in the short to medium term. Supported by sustained economic growth, further increases in the number of inbound visitors, rising inflation, continual growth in retail sales, as well as the limited supply of shops in prime areas, Colliers research predicts the average rent of street shops in traditional shopping districts will grow further by 15% in the next twelve months.