Retail in Asia

In Shops

Retail rents in HK’s core locations record largest quarterly decline since 1998 in 3Q

Overall retail rents in Hong Kong’s core locations slumped 9.1 percent quarter-on-quarter (q-o-q) in the third quarter of 2015, the largest quarterly decline recorded since 1998, property consultant CBRE said on Tuesday. Rents in Causeway Bay fell most severely by 11 percent q-o-q, while rents in Central, Tsim Sha Tsui and Mong Kok declined by 9.2 percent, 7 percent and 7.6 percent q-o-q, respectively.

Total retail sales in July and August combined, dropped 4.2 percent y-o-y. Watch and jewellery sales dived by 7 percent y-o-y in July and August combined.

More luxury brands and high-value retailers surrendered leases on tier one streets in the third quarter. However, mid-range retailers are attempting to capitalise on consolidation by luxury groups by expanding to regain their foothold in prime locations. Cosmetics and sports brands were the most active sectors in the quarter.

"The top tier retail market deteriorated in the third quarter. The shift in mainland Chinese tourist spending patterns coupled with slower tourist arrivals continued to erode confidence among luxury retailers. This resulted in more cases of lease surrender and rental cuts for tier one street shops by jewellery and luxury retailers. We expect the rental downcycle to continue in Q4," said Joe Lin, Executive Director, Retail Services, CBRE Hong Kong.

For the fourth quarter of 2015, CBRE expects to see more surrender or consolidation cases among luxury retailers in the coming quarters. Non-luxury retailers are set to be the main driver of retail leasing demand in Hong Kong.

Leasing transactions signed over the past two quarters at lower rents in tier one streets will set new benchmarks for lease negotiations in the coming months. Average rents for space in core retail locations will continue to decline, with the full year rental downward adjustment for 2015 projected at around 20-25 percent.