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News Release

Hong Kong

Market Bottom Gives Retailers Confidence to Open New Stores

Rare opportunities for street-level shops with high brand visibility


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After some dark days, retailers are finally taking a rosier view of the Hong Kong market. Rents in core shopping districts have dropped an average of 41.2% since their market peak in 2014, but retail sales are now picking up. Retailers spy the bottom of the market and are seizing the opportunity to secure new stores at low rentals, and to venture from the relative safety of malls to lease street-level shops in prime shopping areas to gain greater brand exposure.

"It's really exciting to see retailers' mood change from being pessimistic 12 months ago, to being more optimistic now that the market is predicted to recover next year," says James Assersohn, our Director of Retail Leasing, Asia Pacific. "The 50% drops in rent in Causeway Bay and Central have created a great opportunity for brands to lease space in prime retail areas that they wouldn't have been able to afford previously."

Assersohn sees Adidas occupying the space previously filled by Coach, and Italian lingerie brand, Intimissmi, taking up a store previously held by Chow Tai Fook Jewellery on Kai Chiu Road in Causeway Bay as good examples of how the market is correcting to offer a more balanced range of luxury, mid-range and affordable brands to consumers.

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A survey we conducted in June of 50 local and international retailers found that 62% plan to open new stores in Hong Kong next year, even though all of the respondents still regarded high-street rentals to be overvalued. 

The rebound in tourist arrivals in the first five months—up 3.2% year on year to 23.6 million—is fuelling retail expansion plans. Overnight tourists—who often spend twice what same-day tourists spend—increased 5.7% y-o-y to 11 million. Visitor arrivals from Mainland China rose by 3.4% over this period, adding to the positive outlook for retailers. 

"Up to a third of Hong Kong's retail sales come from mainland Chinese visitors. Most retailers would welcome more Chinese tourists because they spend more than other tourists," observes Assersohn.

Changing consumption patterns and shopper profiles over the last three years have led to greater demand for mass and mid-market brands, which exerted large-scale downwards pressure on rentals. "The affordable brands now have more demand and better growth and can therefore justify opening new stores," explains Assersohn. "With lower rents across most of the market, retailers see their potential sales-to-rental ratio at a level where they can make money."

Mass and mid-market brands will remain the main source of leasing demand. Food and beverage operators remain highly sought-after by shopping centre landlords, while cosmetics and mid-range fashion brands, as well as cinemas and fitness centres, are thriving.

"Over the past 18 months, the sports sector has definitely been the most bullish," notes Assersohn. "But jewellery is now doing well, and contemporary, fashion-forward brands have had a good time recently." 

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Over the next six to nine months Assersohn expects to see a number of tenants try to renegotiate three-year leases that were signed at the peak of the markets, or just after. "There is still a bit of vacancy in the market, particularly in the centre of Causeway Bay, which needs to be re-absorbed. I don't see rents increasing while there is still empty supply," he adds.

"Some retailers were previously restricted to shopping malls because they could not afford the significantly higher rents at street level. Now the rents have come down, street stores are a great way for retailers to build their brand exposure and to take advantage of being able to do more with their space to create a brand experience."

This trend has given rise to cross-concept stores, whereby a fashion store might open a café on their premises. "Retailers are looking at ways to engage with their customers and keep them interested in their brand. A better customer experience translates into more brand loyalty and brand awareness," explains Assersohn. 

But he expects retailers to keep a mix of shopping malls and street level shops in their portfolio because outside of Hong Kong's core retail districts, most brands feel more comfortable in a shopping mall environment.

"Malls offer the right brand environment, mix of other tenants, and (in most cases) MTR access, so you have the traffic going through." 

Between now and 2021, 6.6 million sq ft of new supply is scheduled for completion—equivalent to three times the retail space found in the Harbour City mall in Tsim Sha Tsui. Spread out over Hong Kong's residential sub-markets, Assersohn says it won't swamp the market. Most of the new supply will be located outside of core retail districts, and provided there is the right tenant mix, the supply can be easily absorbed.

"There is definitely room for more shopping centres and retail in Hong Kong," he concludes. 

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