Hong Kong retail start recovering
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A “steady if cautious” Hong Kong retail recovery is clearly underway, according to a report from Savills released today.
“The retail sector is slowly coming to life after four years of painful adjustment which has seen the emergence of a ‘tenant’s market’, a rare occurrence in Hong Kong’s landlord-dominated retail scene,” observed Simon Smith, head of research and consultancy with Savills.
Over recent months, he said, retailers have been taking the opportunity to upgrade for little or no extra cost and examples include Pandora which moved within IFC Mall and Hourglass, which runs Patek Philippe, relocating within Tsim Sha Tsui from the Imperial Hotel to a better site in the Holiday Inn.
In further evidence of upgrade demand, Harry Winston has taken the space previously occupied by Ferragamo in the Mandarin Hotel and will open in early 2018. Alternatively, retailers are cutting overheads as they find that renewal negotiations are yielding significant savings as landlords discover a new pragmatism.As reported, Topshop has renewed the lease on its Queen’s Road Central store at a discount of about 50 per cent.
While landlords of high street shops remain on the back foot, larger shopping centres, such as Harbour City, IFC Mall and New Town Plaza, are proving relatively immune to the downtown, says Smith.
In IFC Mall, Italian menswear brand Boggi opened recently while Brunello Cucinelli has launched a new flagship in the same mall.
“As street-shop rents have fallen heavily while centre rents have only seen a minor adjustment, the gap between the two has narrowed considerably and tenants are now finding that a prime street front pitch can be a viable alternative to taking space in a nearby mall. This is the narrowest the gap has been since 2009 and represents a return to the norm after seven years of major gains in street shop rents.”
“In further evidence of upgrade demand, Harry Winston has taken the space previously occupied by Ferragamo in the Mandarin Hotel and will open in early 2018.”
Strength in regions
Savills also notes that regional and district malls such as Popcorn in Tseung Kwan O and Tuen Mun Town Plaza are doing relatively well.
“Hong Kong’s tight geography, excellent transport infrastructure and dense retail environment has helped this type of mall defend against the threat from online. The appeal of air conditioned spaces in the summer months and the lure of enhanced F&B offerings have also helped boost the appeal of local malls. We have also seen landlords putting more effort into marketing campaigns with better events, more pop-up stores and creative TV and online advertising,” said Smith.
“Most malls now have a very well-established cyber-presence via websites and apps. Click-and-collect is making some limited headway locally, with brands such as Zara, Burberry, L’Occitane, Watson’s Wine, Chow Sang Sang and Starbucks all offering the service.
“In a mixed market some trade categories are performing well and pharmacies in particular are expanding aggressively at the moment. Not every landlord wants them but they are often prepared to pay above-market rents. F&B is also out-performing, driven in part by a richly valued stock market and rising wages.”
Nick Bradstreet, head of retail with Savills, said luxury fashion is turning around in Hong Kong even though brands have been closing stores in Macau and Mainland China over the past year or so. Luxury sales in China have actually surged over the past six to nine months.
“Cosmetics retailers are reporting fairly stable business, but after a period of rapid expansion, many brands are still culling store numbers. Electrical goods retailers are consolidating in what is a very competitive marketplace,” he said.
Savills prime street shop rental indices remained flat over the third quarter while rents in prime malls continued to drift off marginally. The latest September retail sales figures from government recorded a seventh consecutive month of rises attributable in part to a strong inbound tourist numbers. Jewellery, watches, clocks and valuable gift sales outperformed, rising by 14.7 per cent year-on-year, with strong growth also noted for medicines, cosmetics and Chinese drugs.
Questions & Answers
Q.What is the primary reason for retailers being able to upgrade their store locations without significant additional cost?
What is the primary reason for retailers being able to upgrade their store locations without significant additional cost?
The retail sector has experienced four years of adjustment, creating a 'tenant's market'. This rare situation in Hong Kong's landlord-dominated scene allows retailers to negotiate favourable terms for better locations.
Q.Which specific retail categories are currently performing well in Hong Kong?
Which specific retail categories are currently performing well in Hong Kong?
Pharmacies are expanding aggressively, often paying above-market rents. Food and beverage outlets are also out-performing, boosted by a strong stock market and rising wages. Luxury fashion is also showing a turnaround.
Q.How have landlords of shopping centres adapted to the changing retail landscape?
How have landlords of shopping centres adapted to the changing retail landscape?
Landlords are investing more in marketing, including better events, pop-up stores, and creative advertising. They have also developed strong cyber-presences and implemented click-and-collect services to attract shoppers.
Q.What is the current relationship between street-shop rents and shopping centre rents?
What is the current relationship between street-shop rents and shopping centre rents?
Street-shop rents have fallen heavily, while centre rents have only seen minor adjustments. This has narrowed the gap between them considerably, making prime street locations a viable alternative to mall spaces for tenants.
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