Hong Kong: Retail


Driven by strong growth of tourist arrivals from Mainland China, up by 21.2% y-o-y in October–November, total tourist arrivals increased by 14.1% y-o-y over the same period amidst the Occupy Central (or rather Occupy Hong Kong) protest. However, total retail sales were relatively weak in October, due to a visible decline in sales of jewellery and watches and a relatively lacklustre performance of items closely related to local consumption.

Against this backdrop, some retailers were still keen on leasing shops in areas less affected by the protests. For example, an Italian lingerie retailer, La Perla, pre-leased all 4 storeys (7,803 sq ft) of a new development at 22–24 Russell Street for around HKD 7 million per month. However, other retailers used the protests as a bargaining chip to negotiate for lower rents, especially for shops in core locations with lease expires during the quarter.


The Tai Wai Station project was awarded to New World Development (“New World”) for HKD 2.9 billion. New World will build the entire development including the residential and commercial portions, whereby the ownership of the shopping centre would need to be returned to MTRC upon its completion. The project should be able to provide a 650,000 sq ft shopping centre, with expected completion in 2018.

Asset Performance

The changing shopping patterns of Mainland shoppers together with the effects of the Occupy Hong Kong protest put further pressure on rents. Coupled with demand dwindling among some big-ticket item retailers, rental corrections were seen in some fringe streets in core locations.

In the investment market, Fortune REIT acquired Laguna Plaza (163,000 sq ft) in Kwun Tong from CLSA for HKD 1.92 billion. Meanwhile, investors continued to target undervalued properties with upgrading opportunities.

Due to the already low yields for properties in core locations, investors were no longer willing to chase yields down further, leading to a fall in capital values for High Street Shops in the quarter.

12-Month Outlook

Retail sales should post stronger growth in the next 12 months, although the anticorruption scheme and the changing shopping pattern of Mainland shoppers remain as downside risks. On a positive note, international retailers should remain keen on opening stores in Hong Kong given its mature retail market and the healthy growth of tourist arrivals. However, they will likely adopt a conservative approach in leasing negotiations. As such, we retain our forecast for rents for High Street Shops to correct by around 5% in 2015. Low holding costs and stable local consumption should continue to draw investors towards investing in undervalued properties especially in non-core locations.

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