Hong Kong retail market enters post-correction era
In this article (5)
Hong Kong’s retail sector is transitioning into a period of normality. After several years of correction, the retail market is showing genuine signs of stability and renewed tenant activity.
The driver is, simply, cost. In the first half of 2017, rental costs of core shopping areas have finally come down to a level considered acceptable from a tenant perspective. Significantly, with this normalization, low-to-middle range retailers are now confident and less likely to succumb to outlandish rental costs and fierce competition with luxury jewelry stores for retail space. Higher up the value chain, landlords of shopping malls and street shops have become so nimble with their portfolio strategy that a more diversified market has brought in a new era of retail.
The change is conspicuous. Major streets in Hong Kong are no longer dominated by jewelry shops, pharmacies or luxury brands.
Outside forces are increasingly influencing this retail shift; Chinese tourists’ diminishing consumption have changed the consumer profile. And as a result, landlords have to cater to the needs of a more local clientele. To reflect the transition in the market, landlords are actively leasing to more trendy tenants such as affordable luxury brands, diversified fashion concepts, cosmetics stores and food & beverage establishments.
“But retailers have still not fully regained their confidence and a meaningful recovery in Hong Kong will take time.”
The change is also occurring away from the street level. Most shopping malls have transformed or are about to transform their tenant mix by adding unique restaurants, niche fashion brands, international lifestyle stores or sports-related gadget shops. In addition to cinemas, landlords are signing boutique-style gyms as alternative tenant anchors. They are successfully attracting footfall, complemented with a sports brand added to the trade-mix.
But retailers have still not fully regained their confidence and a meaningful recovery in Hong Kong will take time. Signs of a more measured rebound are more obvious with well-established brands who are still regrouping from their extensive expansion across Greater China. As such, newer brands are taking advantage of the situation and are actively acquiring.
Innovative hybrid concepts, mingling entertainment with dining, have been imported from the overseas market into Hong Kong. As opposed to previous cycles, international operators of these new concepts have found space in revitalized industrial buildings. Some of these family-friendly restaurants, like Mr. Tree and Crazy Car Cafe in Lai Chi Kok, have become so sought-after that customers have to book one month in advance to secure a place for a child’s birthday party.
Nonetheless, the current retail market is at its healthiest it has been in the last ten years. Hong Kong’s landlords are now adopting proactive and flexible strategies to attract tenants and foot traffic, paving the way for the long term development of the retail industry. Only time will tell.
Questions & Answers
Q.What is the primary factor driving the current changes in Hong Kong's retail market?
What is the primary factor driving the current changes in Hong Kong's retail market?
The main driver behind the shift is the reduction in rental costs, which have reached a level considered acceptable for tenants in core shopping areas in the first half of 2017.
Q.How have changing tourist consumption patterns affected retail in the region?
How have changing tourist consumption patterns affected retail in the region?
Diminishing consumption by Chinese tourists has altered the consumer profile. Consequently, landlords are now adapting their strategies to cater more to the needs of a local clientele.
Q.What new types of tenants are landlords attracting to reflect the market transition?
What new types of tenants are landlords attracting to reflect the market transition?
Landlords are actively leasing to more trendy tenants, including affordable luxury brands, diversified fashion concepts, cosmetics stores, and food & beverage establishments. Shopping malls are also adding unique restaurants and niche fashion brands.
Q.Where are some of the new hybrid entertainment and dining concepts being established?
Where are some of the new hybrid entertainment and dining concepts being established?
International operators of these innovative hybrid concepts have found space in revitalized industrial buildings. Examples given are Mr. Tree and Crazy Car Cafe in Lai Chi Kok.