research & forecast report hong kong retail colliers ... kong-retail-1… · visitors from...

c o ll i e r s i n t e r n at i o n a l | H o n G Ko n G

www.colliers.com/hongkong

hong kong retailmarket

research & forecast report

1Q 2012 | retail

market indicators forecast

overall performance

new supply

tenant demand

incentives

rents

capital values

yields

solid Permformace ahead

the first quarter of 2012 unveiled a solid run for the retail market, despite an increasingly challenging external environment. Visitors from mainland China remained the major pillar supporting hong kong’s inbound tourism growth, which surged 21% YoY to 8.2 million visitors during the three-month period ending February 2012. likewise, retail sales remained robust in 1Q 2012, with sales of jewellery, watches and clocks and valuable goods rising 16.6% YoY in the first two months of 2012.

the inflow of overseas brands and luxury fashion showed no sign of abating during 1Q 2012. newcomers outbid one another or existing tenants, agreeing to pay soaring rent in order to secure the best venues in prime shopping locations. By virtue of quality assurance, tax refunds and currency difference, luxury brands in hong kong were still favoured by most mainland Chinese visitors. international retailers were attracted to the hong kong retail market and hoped to leverage this lucrative market by making their presence known to mainland travellers before actually stepping into the China market, where local consumption is growing robustly.

While first-tier streets in core shopping locations have been dominated by overseas brand names following their continual expansion, local retailers with smaller business scale continued to relocate to second-tier shopping streets where rents are more affordable. the positive spill-over effect in core shopping locations continues to benefit second-tier streets. as retail rents in first-tier streets are reaching an unremitting high, small-scale retailers have shifted their attention to second-tier streets, which in turn drives up demand for retail premises in second-tier streets and pushes up rents.

again, it was a landlord’s market in 1Q 2012. retail rents in the four shopping districts displayed promising growth in 1Q 2012 compared to the previous quarter. overall retail rents grew further for ground-level shops in the four traditional shopping districts, accelerating 5.3% QoQ in 1Q 2012 compared to 3.7% QoQ in the preceding quarter. meanwhile, rents in Central witnessed the strongest growth, up 5.9% QoQ during the quarter, on the back of aggressive bidding for retail premises in the first-tier streets.

looking forward, with an increase of household income amongst local families and the prospective increase of retail sales attributed to inbound visitors, the total volume of retail sales continues to look positive in 2012. the downside risk in the retail market is the change of the tax regime in China, which may tempt mainland visitors to stay home and spend less in hong kong. however, as more overseas brands continue coming to hong kong and taking up space in a market with no new stock, the average retail rent in traditional shopping locations is projected to go up by 12% over the next 12 months.

p. 2 | colliers international

hong kong | 1q 2012 | retail

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Source: Hong Kong Tourism Board

escalatinG leasinG demand the retail market in the first quarter of 2012 showed a startling performance regardless of the concerns over the stagnant US economic recovery and a global recession. Underpinned by the robust growth in domestic consumption and tourist spending, leasing demand was booming in the retail sector in 1Q 2012.

inBound tourism Statistics released by the hong kong tourism Board (hktB) indicate visitors welcomed by hong kong during the three-month period ending February 2012 increased 16% YoY to 11.7 million. Visitors from mainland China, the major pillar supporting inbound tourism growth, surged 21% YoY to 8.2 million from December 2011 to February 2012, of which 5.6 million travellers visited hong kong under the individual Scheme. in view of the uncertain external environment, hktB projected that visitor arrivals would increase 5.5% to 44 million in 2012.

leasing Demand

Growth pace tapered off retail sales remained rather robust in the first quarter of 2012, and the total value of retail sales rose 15.7% YoY to 33.8 billion in February 2012. to eliminate the distortion caused by the timing of the lunar new Year, which fell in February last year and in January this year, by taking the first two months of 2012 together, retail sales grew appreciably albeit at a slower pace at 15.2% YoY compared to 18.7% YoY during the same period last year. Slower growth was observed in the sales of high-end luxury items such as jewellery and watches, cosmetics and skin care products, and clothing. however, the sales value of electronic goods and photographic equipment continued to increase. overall, luxury items were still favoured by mainland visitors due to quality assurance, tax refunds, as well as the currency difference.


colliers international | p. 3

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Source: Census & Statistics Department, HKSAR Government

according to the breakdown of retail sales in hong kong, the value of the sales of jewellery, watches and clocks, and valuable gifts rose 16.6% YoY in the first two months of 2012, comprising 22% of the total retail sales. meanwhile, sales of electronic goods and photographic equipment performed well, increasing 42.2% YoY during the period. looking forward, luxury items will remain the chief purchasing target on the shopping list for mainland tourists, with both sales volume and value continuing to grow, albeit at a slower pace.

economic uncertainties worried consumers the total value of restaurant receipts increased by 7.2% YoY to hk$23.6 billion in 4Q 2011, compared to a growth of 6.2% YoY in 3Q 2011. nevertheless, F&B operators were still facing challenges due to the high cost of inputs such as labour wages, retail rents and food prices. regardless of easing inflation, F&B operators, particularly those with a smaller scale, found it difficult to do business on the back of ever-rising retail rents.

in addition, there was growing concern over the global economic outlook among hong kong consumers, as the latest global survey conducted by nielson showed. according to the survey, 39% of hong kong consumers were worried about the future economic outlook, replacing rising food prices (30%) as the top concern over the next six-month period recorded in 4Q 2011. meanwhile, utility bills (35%) remained the second biggest concern for the second consecutive month, while other concerns were job security (18%) and work/life balance (16%).



continual eXpansion of luXury Brands against the spiralling eurozone debt crisis, which continued to cloud the global economic outlook, the inflow of overseas brands and luxury fashion showed no sign of abating during 1Q 2012. newcomers outbid one another or existing tenants, paying top retail rents in order to secure the best spots in prime shopping locations. the buoyant domestic consumption and visitor spending have lured international retailers to tap into hong kong’s retail sales market. moreover, returning visitors are becoming more familiar with the city’s shopping locations and they have developed a ‘one-stop’ shopping behaviour. the change in shopping behaviour makes it more essential for overseas brands to establish their presence in prime shopping locations. the continual expansion of overseas brands in hong kong has translated into a robust demand for retail premises in the core shopping districts of Central, Causeway Bay, mongkok and tsim Sha tsui.

recently, international retailers are somewhat less keen on the Western markets given their sluggish economic recovery, but are showing strong interest in the asian markets, particularly China, for further expansion. after the successful opening of overseas fashion brands such as abercrombie & Fitch, gaP and Forever 21, international retailers remain firm on the hong kong market. this is to grab a share of this lucrative retail sales market and make their presence known to mainland travellers before they step into the China market, where local consumption is growing appreciably.

positive spillover effect First-tier streets in core shopping locations have been dominated by overseas brand names following their continual expansion. local retailers with a smaller business scale have had no choice but to relocate to second-tier shopping streets where rents are more affordable. the positive spillover effect in core shopping locations continues to benefit second-tier streets. as retail rents in first-tier streets are reaching an unremitting high, small-scale retailers have shifted their attention to second-tier streets, which in turn drives up demand for retail premises in second-tier streets and pushes up rents.

While buying sentiment from mainland visitors remains upbeat, the demand for tourist driven products (jewellery, high-end fashion and cosmetics) continues to outstrip that of non-tourist driven products. Visitors from mainland China continued to enjoy shopping in hong kong due to the tax-free policy and renminbi appreciation.

Source: Colliers

prominent retail leasinG transactions in 4Q 2011

premises district floor rental(hk$ / month)

Gfa(sq ft)

unit rental(hk$ / sq ft /

month)tenant

Park lane Shipper's Boulevard tsim Sha tsui g/F, 1/F 1,380,000 3,332 414 ainer

24-30 Percival Street Causeway Bay Basement and g/F 1,100,000 6,985 157 Bonjour

St. george's Building Central lg/F and g/F 5,000,000 4,894 1,022 max mara

50-52 Queen's road Central Central g/F, 1/F 3,500,000 6,340 552 Zara

21-22 Connaught road Central Basement, g/F, 1/F 500,000 6,000 83 Chee kee noodle

Note: Information from market sources



Source: Colliers* Street level shops on key street segments(Nov-2011 = 100)

retail rental indeX By major districts (*)

district 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 QoQ chanGe

Causeway Bay 71 73 75 79 86 92 97 100 106 5.6%

Central 69 71 73 77 83 90 95 100 106 5.9%

mong kok 75 76 78 82 88 94 97 100 104 3.9%

tsim Sha tsui 72 74 76 80 87 93 97 100 105 5.5%

Overall 72 74 76 80 86 93 96 100 105 5.3%

supply

rental trendpromisinG retail Growth retail rents in the four core shopping districts of Central, Causeway Bay, tsim Sha tsui and mongkok displayed promising growth in 1Q 2012 compared to the previous quarter. again, it was a landlords’ market in 1Q 2012. in view of the limited supply and strong demand for ground level retail shops in prime shopping locations, some landlords subdivided retail space into smaller units and increased rents at the same time.

overall, retail rents for ground-level shops in the four traditional shopping districts grew further - accelerating 5.3% QoQ in 1Q 2012 compared to 3.7% QoQ in the preceding quarter. rents in Central witnessed the strongest growth, up 5.9% QoQ during the quarter, on the back of aggressive bidding for retail premises in the first-tier streets.

as discussed, there have been some changes in the shopping behaviour of visitors as they get more familiar with the city – the development of one-stop shopping, and the positive spillover to neighbouring streets. in order to reflect better the current market activities, the retail rental index has been revised by adjusting the basket of street segments in each of the four traditional shopping locations. the adjustment was introduced in 1Q 2012.

the occupation Permit of hysan Place, a retail/office building in Causeway Bay, was issued in march 2012. the complex is the only new supply to be injected into the market in the four prime shopping locations in hong kong. according to hysan, over 90% of the retail premises in hysan Place have been pre-committed as of the end of February 2012. the average rent for the retail portion is about hk$150 per sq ft per month. the company anticipated it would achieve full occupancy on its opening in august 2012.

other than hysan Place, no new retail supply will be released to the core shopping districts of Central, Causeway Bay, tsim Sha tsim and mongkok in 2012. given this extreme supply situation, neighbouring streets such as kai Chiu road and Pak Sha road in Causeway Bay and Wellington Street in Central will see increased shopper traffic due to the positive spillover. in addition, as most of the stores in first-tier streets target mainland Chinese tourists, neighbouring streets will attract a different group of younger shoppers with more local brands.



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Source: Colliers

investment Market activityrisinG rents attracted investors Due to government controls on the residential market and expectations of a further fall in office rents, more investors have turned to the retail market for investment opportunities. the overall volume of investment sales of retail units with a lump sum consideration of hk$10 million or above expanded 17% QoQ in 1Q 2012.

second-tier streets given the limited availability of retail premises for sale in traditional shopping locations, investors have started to look for opportunities in second-tier streets. During 1Q 2012, the market witnessed a number of retail transactions in the second-tier streets in prime shopping locations such as tsim Sha tsui and Causeway Bay.

one of the significant transactions completed during 1Q 2012 was the sale of Bigfoot Centre, a 27-storey commercial building with retail shops from g/F to 20/F and office premises from 22/F, for hk$858 million. the property is located at 38 Wah Yiu Street and is close to times Square and russell Street in Causeway Bay. given a gross floor area of 59,854 sq ft, the average price was about hk$14,334 per sq ft. in addition, golden team holdings sold the whole block of Bloom house, a 23-storey ginza-type commercial building at 2 tang lung Street, Causeway Bay for hk$598 million. the average price was hk$14,238 per sq ft based on a total gross floor area of 42,000 sq ft.

meanwhile, the most prominent strata-title sales transaction during 1Q 2012 was the sale of a batch of retail premises in tsim Sha tsim by Ygm trading to everchamp Properties for a total of hk$439.8 million. the retail properties included Shop nos. g29 & g30 on g/F and Shop no. 15 on 1/F of Site F, Park lane Shopper’s Boulevard at nos. 111-139, 143-161 & 165-181 nathan road. the 3,470 sq ft of retail space is occupied by a lingerie shop at a monthly rent of hk$1.38 million. the initial yield was about 3.8%.



Source: Rating and Valuation Department

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yield remains flatthe overall retail investment yield remained steady at 2.9% from november 2011 to January 2012, according to the latest figures released by the rating and Valuation Department. this indicates a similar growth rate in retail rentals as to capital values. meanwhile, the average yield in prime retail locations in traditional shopping areas compressed to below 2.7%.

colliers international (honG konG) limited

Suite 5701 Central Plaza18 harbour road Wanchaihong kongtel +852 2828 9888faX +852 2828 9899Company licence no: C-006052

simon loexecutive Director | research & advisory | asiatel +852 2822 0511faX +852 2868 5275email [email protected]

522 offices in 62 countries on 6 continentsUnited States: 147Canada: 37latin america: 19asia Pacific: 201emea: 118

• $1.8 billion in annual revenue in 2011

• 1,250 million square feet under management

• over 12,300 professionals

Copyright © 2012 Colliers international.

the information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. no responsibility is assumed for any inaccuracies. readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.


richard kirkemanaging Director | hong kongtel +852 2822 0699faX +852 2107 6047email [email protected] licence: e-279867�

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Source: Colliers

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accelerating success.

Market outlooklooking forward, the number of visitors coming to hong kong is anticipated to increase further, although the growth rate might narrow to a single digit in 2012. With an increase of household income amongst local families and the prospective increase of retail sales attributed to inbound visitors, the total volume of retail sales continues to look positive in the next 12 months.

however, the downside risk in the market is that the high street retail rentals have been too reliant on the consumption of inbound visitors, particularly those coming from mainland China. the local market will then be very sensitive to any change of tax regime in China. a number of mainland visitors might be tempted to stay in their hometowns and spend less here in hong kong. nevertheless, with more overseas brands coming to hong kong and the continuing lack of new stock in the market, the average retail rent in the traditional shopping locations is projected to go up by 12% over the next 12 months.

research & forecast report hong kong retail colliers ... kong-retail-1… · visitors from...

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