New high in HK traditional shopping district rents

HONG KONG: Hong Kong’s retail property leasing and sales remained upbeat in 2Q11 and Colliers International research predicts the average rent of street shops in traditional shopping districts will grow further by 15% in the next 12 months. This will be 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.

Underpinned by strong demand, retail rental growth was observed across the board in 2Q. The average rent of street shops in the traditional shopping districts, increased 7.4% quarter-on-quarter (q-o-q) to a record high in 2Q, following a solid growth of 8.1% in 1Q. It has surpassed the previous peak level in mid-2008 by 11%, according to Colliers’ latest research and forecast report on Hong Kong’s retail market.

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 than the previous quarter.

The local retail market is seeing good sales for big-ticket items, with the sales of jewellery, watches and clocks and valuable gifts experiencing significant growth of 61.3% year-on-year (y-o-y), to HK$7.61 billion (RM2.88 billion) as of May 2011. Sales of other items, such as clothing and footwear (+30.1% y-o-y), electrical goods and photographic equipment (+54.1% y-o-y), and medicines and cosmetics (+17.2% y-o-y) also performed well.

Given the vibrant domestic demand and visitor spending, as well as potential 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 China cities, big 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 in a statement.

“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 an upper-hand in the bidding war,” said Lo.

Leasing demand from brand-name retailers and jewellers, he said, is expected to be strong although inflationary pressure on food prices acts as a potential dampener on food & beverage operators’ leasing demand in the short to medium term.

Meanwhile, the retail investment market picked up strongly in 2Q. The number of retail sales transactions of HK$10 million or above saw a notable growth of 44% q-o-q in 2Q. Local investors continued to dominate sales 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%.

This article appeared on the Property page, The Edge Financial Daily, July 29, 2011.

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