Shop owners set to cash in as strong sales drive up prices

HONG KONG: Surging China visitor arrivals in Hong Kong and the resulting jump in retail sales has driven prices of prime retail properties strongly higher, prompting owners to sell and take profit, according to agents.

Among those cashing in is SHK Hong Kong Industries, formerly Yu Ming Investment, which says it will sell its 127 shops in the Argyle Centre in Mong Kok.

It will test the market with a batch of 16 second-floor shops ranging in size from 110 sq ft to 470 sq ft, and is looking for prices up to HK$132,000 (RM51,381.77) per square foot.

"If it achieves these prices they will set a new benchmark for shops on upper floors," said Kimmy Ting, an associate director at Ricacorp Properties.

The strong performance of the retail sector, combined with the limited supply of prime retail space, had driven prices and rents in the area sharply higher, said Ting, and more owners of prime shops would sell if SHK achieved its price targets.

SHK hopes to sell the shops at prices ranging from HK$10.71 million to HK$21.98 million each, or HK$38,660 per square foot to HK$131,962 per square foot. Based on a 40% to 50% efficiency rating for shops, their net area could be as small as 50 square feet.

According to property agents, more than 10 potential buyers have expressed interest in buying shops in the centre for investment, since yields there are usually above 3% a year.

At present, the shops are leased mostly to small retailers selling no-frills fashion at rents ranging from HK$26,800 to HK$55,000 per month, or HK$134 to HK$265 per square foot. But Ting expects rents could rise by 20% to 30% when leases fall due for renewal this year.

"Most landlords are reluctant to lock up long leases and sign leasing contracts for only nine months to a year to capitalise on upward movements in retail rents," he said.

Property agents expect SHK may raise prices by 3% to 5% if the first sales draws an enthusiastic response.

Given its location in Mong Kok, more than 50% of customers at the Argyle Centre were China buyers, said Ting; 30% being local shoppers and the remainder non-China visitors. A record 36 million people visited Hong Kong last year, of which 63%, or 22.5 million, came from China.

According to a Nielsen poll of more than 500 China visitors conducted last year, they spent an average of HK$12,000 in Hong Kong.

Pierre Wong Tsz-wa, chief executive of commercial property agency Midland IC&I, said he was upbeat about the retail market outlook for the rest of the year.

"The selling prices of shops are determined by rental incomes. When tenants can afford higher rents, the capital value of shops will go up as well," he said.

Wong said some China investors had shown interest in buying shops after witnessing the steep rise in retail rents last year.

Ricacorp said more shops changed hands in Mong Kok than any other district.

Patrick Chow, head of research at Ricacorp, said more than 300 retail deals might be done in the next three months, which is the traditional peak season.

"As prime retail shops have become more expensive, investors will look for investment opportunities in secondary locations which still draw China shoppers," he said. — SCMP