• Overall retail sales recorded first decline since February 2017 (-1.6%)
• Average shopping centre base rents in Kowloon rose (+1.5%, driven by the rental growth at Harbour City) over Q1/2019
• Cosmetics and pharmaceuticals recorded highest growth; “silver economy” on the way
Hong Kong - 16 April 2019 Prominent real estate advisor Savills saw the Hong Kong retail leasing market posted a subdued performance and shopping mall rents rose modestly driven mostly by Harbour City (HK$102 million of retail sales daily in 2018), while street shop rents flatlined. Retail sales over January and February recorded their first decline since February 2017, falling by 1.6%. We expect retail rents to remain stable in 2019.
The new bridge and rail infrastructure projects have brought more day trippers from the mainland, and as a result, local pharmacies and multi-brand cosmetics chains continued to drive the leasing market over Q1. While sales of electrical goods and other consumer durable goods (-18.3% YoY), department stores (+4.2%) and medicines and cosmetics (2.3%) recorded the highest YoY growth.
In particular, the cosmetics sector is growing in both the local and international markets. After closing its flagship store in Mong Kok 10 years ago, cosmetics retailer Sephora re-entered the Hong Kong market by pre-leasing a 4,000-sq ft store at ifc Mall near Zara. In the meantime, its local peer Sa Sa has been expanding in both Tsim Sha Tsui and Mong Kok. Internationally, Hermes has announced a plan to launch their beauty collection in 2020.
The silver economy is another area of growth. Noticing the retail needs of this growing consumer group, retailers and shopping centre landlords like Shiseido are casting senior models in advertisements, offering discounted memberships and special classes for the “silver population” and the “soon-to-be-old” group.
Mr. Nick Bradstreet, Managing Director, Head of Leasing said: “Notably, more retailers put a greater emphasis on quality and originality, focusing on a rounded in-store environment (e.g. Canada Goose’s cold room in its IFC shop, Lululemon’s yoga classes, Gentle Monster’s unique stores designed by 60 artists). Retailers are also turning to digital platforms, KOLs and celebrity endorsements for promotion, rather than relying solely on mall landlords. These are the main drivers for future growth.”
Mr. Simon Smith, Senior Director, Research & Consultancy commented: “Causes of disruption in the retail market are appearing in many different forms from demographics to new technology and changing spending preferences. We expect 2019 to see stable rents in the absence of any major stimulus which would be necessary for robust growth.”