Hong Kong: Retail


Growth of total retail sales remained largely flat in July–August after declining 7% y-o-y in 2Q14. The Mainland Chinese government’s anti-corruption campaign and the changing shopping patterns of Mainland tourists continued to weigh on demand for luxury goods with sales of jewellery and watches down 14.7% y-o-y in July–August, albeit slightly better than the 31.6% y-o-y fall recorded in 2Q14.

Despite the pull-back in retail sales, leasing demand in prime shopping locations remained largely intact. For example, a sportswear group leased a 4-storey shop (5,360 sq ft) on Wellington Street in Central for around HKD 630,000 per month.


Henderson Land won the tender for Kowloon Inland Lot No. 11237 at 15 Middle Road in Tsimshatsui, paying a land premium of HKD 4.69 billion. The site has the potential to provide a total of 339,709 sq ft of commercial floor space. According to market sources, Henderson Land plans to develop a Ginza-type commercial building on the site.

Asset Performance

Rents on prime streets in core locations held firm in 3Q14, with retailers still willing to shoulder higher rents to secure space for their flagship stores. However, with vacant shops starting to appear along some high streets and sales slowing, retailers adopted a more measured approach towards leasing decisions. As a result, we have started to see some mild rental corrections in the market, though still largely restricted to fringe streets in core locations.

Investor sentiment remained strong with buyers targeting undervalued properties with upgrading opportunities. The investment market in the quarter was highlighted by the disposal of properties by Link REIT for a combined HKD 1.72 billion. Properties sold included the shops and car parks at Choi Fai Estate in Ngau Chi Wan and Choi Ha Estate in Ngau Tau Kok, the Siu Lun Shopping Centre in Tuen Mun, the Tin Ping Shopping Centre in Sheung Shui and the Tsui Lam Shopping Centre in Tseung Kwan O.

12-Month Outlook

Despite downside risks, retail sales are still forecasted to record mild single digit growth in 2014 as the effect of the high base comparison brought about by high gold prices a year earlier starts to fade. However, headwinds remain for the sector. The anti-corruption crackdown in China and changing shopping patterns of Mainland tourists are still expected to weigh on retail sales growth. On the positive side, international retailers remain keen on opening stores in Hong Kong with fast fashion brands, cosmetics and medicine retailers leading the way. Against this backdrop, we retain our forecast for rentals of prime retail assets to grow in the range of 0–3% in 2014. Low holding costs and potential upgrading opportunities in non-core locations should continue to draw buyers into the investment market and lend support to capital values. In general, we believe the Occupy Central movement should only have a short-term impact on overall retail sales. Hence, the direct impact on retail rents is expected to be light, unless the protests last for a longer period of time.

Note: Hong Kong Retail refers to Hong Kong’s Overall Prime Shopping Centres and High Street retail markets.