Hong Kong’s retail rental market sees 12% growth

Yet downside risks are expected due to global economic slowdown and the potential changes on the taxation and policy front by the mainland authority.

The retail property market in Hong Kong recorded encouraging growth in 4Q 2011 and is expected to see this growth continue in 2012, according to Colliers International’s Retail Market Research & Forecast Report.

The number of visitor arrivals to Hong Kong in 2011 created a new record at 41.9 million. The rising number of visitors, particularly those from mainland China, has created a sustained demand for luxury items. Particularly, sales of jewellery, watches and clocks and valuable goods attributed to an average of 22% of the total retail sales between September and November 2011.

“The continual expansion of overseas labels into Hong Kong is demonstrated by their ubiquitous presence in prime retail locations. Luxury-goods entrepreneurs, particularly from the jewellery and timepieces industries, performed well, outbidding existing tenants and securing shops in core shopping locations. As a result, individual small to medium-sized local retailers, of which rental affordability is not as strong as that of international brands, have to resort to second-tier streets or even relocate to non-traditional areas,” said Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International.

Underpinned by the sustained occupational demand of retailers, retail rents of ground-floor shops in the four traditional shopping districts – Central, Causeway Bay, Tsim Sha Tsui and Mong Kok - continued to rise 3.7% quarter-on-quarter (QoQ) in 4Q 2011, following a growth of 4.3% QoQ in 3Q. Central recorded the strongest growth of 4.9% QoQ given the tight supply and strong demand for ground-floor retail units in high-street segments during 4Q 2011.

On the investment front, the number of sales transactions of retail premises with a lump sum consideration of HK$10 million or above decreased 17% QoQ in 4Q 2011. The average yield in prime retail locations in traditional shopping districts remained compressed at a level below 2.9% in 4Q 2011. “Vendors continued to keep their asking prices at a premium, while most prospective buyers were kept from reaching a deal by the banks’ conservative lending policy towards real estate,” commented Lo.

Looking forward, the retail property market may see downside risks due to global economic slowdown and the potential changes on the taxation and policy front by the mainland authority. However, with the continued growth of visitor arrivals, albeit at a slow pace of single digit this year, and support of local consumption stimulated by the anticipated pay rise in 2012, the retail market continues to see upside and the average retail rent of ground-floor shops in traditional shopping locations is predicted to increase 12% over the next twelve months.