Shop rental growth slows for second consecutive quarter

Rent edged up 2.3%.

The Hong Kong Retail Market Research & Forecast Report 3Q 2012, recently released by Colliers International, found that the average shop rent in the local traditional shopping districts continued to edge up but at a weakening pace.

Amid subdued global economic environment as well as slowing China economy, there were signs that mainland Chinese visitors steered away from hyper spending and spent less on luxuries. The sales value of jewellery, watches, clocks and other valuable gifts in August 2012 recorded the first single-month dip of 3.4% year-on-year (YoY), since July 2009. At the same time, the growth pace of the total value of retail sales weakened, which slowed to 4.5% year-on-year (YoY) in August 2012 from 8.7% YoY in May 2012.

Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International said, “Although buying sentiment has softened amid the economic uncertainties, the strengthening of Renminbi as well as the local low tax rates maintained Hong Kong’s attractiveness towards mainland Chinese shoppers. This keeps growth in retail sales and eventually supports retail rental growth.”

According to Colliers International’s research, the average retail rent in the four traditional shopping districts – Central, Causeway Bay, Tsim Sha Tsui and Mong Kok – increased by 2.3% quarter-on-quarter (QoQ) in 3Q 2012, compared to the growth of 3.4% QoQ in 2Q and 5.3% in 1Q.

Looking forward, caution over economic outlook cools the buoyant buying sentiment of shoppers and leasing demand by retailers. Nevertheless, Hong Kong’s retail property leasing market still has its upside in the form of strong tourism industry, solid demand by overseas retailers, limited new retail property supply in prime locations, increasing household income and rising inflation. Over the next twelve months, the average retail rent is expected to grow 10%.

Amongst the four traditional shopping districts, the retail rental growth in Central took the lead in 3Q 2012, registering 2.8% QoQ. The spotlight of the Central submarket fell on the opening of the Abercrombie & Fitch outlet. The positive spill-over effect on increasing shopper traffic stimulated rental increase in the neighbouring streets.

Similar to the change in shoppers’ buying sentiment, international retailers generally adopted a more cautious attitude on their expansion plans in face of the headwinds from the European debt crisis. However, new overseas brands are still actively looking for prime locations in Hong Kong to test the waters before they kick off their business plans in the mainland China and Asia region.