HK retail sales up 0.2pc in first 11 months last year; 2015 to be challenging for retailers

“The overall sentiment in the retail market has improved after the political protests, and retail sales have seen a mild increase in the last quarter. However, retailers need to be cautious of the gradual decrease in luxury consumption from mainland Chinese shoppers. This, coupled with expensive rents in first tier streets, may result in overall prime street shop rents falling up to 5 percent with premises in the second tier locations likely to experience a more significant decline,” said Joe Lin, Executive Director, Retail Services, CBRE Hong Kong.

The “Occupy Central” protests have had no material impact on tourist arrival growth and overall retail leasing demand in the fourth quarter of 2014, according to the report. Retailers were initially cautious when the protests began to develop but confident was soon restored in the second half of the quarter as the protests in the core retail areas of the city prompted many shoppers to visit non-core retail districts where traffic and pedestrian flow was less affected.

“Mainland Chinese tourists’ increasing preference for mid-range products instead of luxury goods also helped to route some shopper flow to non-core retail areas, a trend which mitigated the impact of the protests on overall retail sales during the quarter,” noted the report.

Overall Hong Kong retail sales recorded mild growth of 2.8 percent year-on-year (y-o-y) in October and November combined – mainly driven by consumer durable goods – bringing growth for the first 11 months of 2014 to 0.2 percent. The sales of consumer durable goods grew 19.5 percent y-o-y in October and November combined, boosted by the strong sales of new smartphones released during the period.

Watch and jewellery retailers continued to lead demand for the first tier street shops in core locations although sales dropped 6.7 percent y-o-y in October and November combined.

“Weaker retail sales growth, greater economic and political uncertainty and the increased availability of space in fringe areas all combined to exert pressure on retail rents. Overall rents for prime streets shops remained largely stable during the fourth quarter with a slight drop of 0.2 percent q-o-q, with the exception of Central witnessing a modest fall of rents by 0.8 percent q-o-q due to softer demand from luxury brands,” says the report.

The increasing trend for Chinese tourists to shop for luxury goods in other markets will continue to prevent high-margin luxury brands from expanding aggressively in Hong Kong. CBRE predicts that the leasing market will be driven by mid-tier brands which appeal to both locals and tourists.