Savills News

Prime rents drift as spending slips, while new market trends emerge

Hong Kong – 04 Jul 2019 Prominent real estate advisor Savills believes the retail leasing market is slowing in tandem with retail sales, with shopping mall rents little changed in Q2, while prime street shop rents recorded a fall of 1.9%. Food, pharmaceuticals and cosmetics are out-performing other retail sectors (+3.1% YoY and +1% YoY in May). The firm believes that the 2019 retail market will see a quiet second half with no big headline deals.

• Hong Kong retail sales remained sluggish in Q2, with F&B, cosmetics and pharmaceuticals continuing to do well
• Rents for both the prime street shop and shopping centre segments are expected to remain mostly stable

Hong Kong – 04 Jul 2019 Prominent real estate advisor Savills believes the retail leasing market is slowing in tandem with retail sales, with shopping mall rents little changed in Q2, while prime street shop rents recorded a fall of 1.9%. Food, pharmaceuticals and cosmetics are out-performing other retail sectors (+3.1% YoY and +1% YoY in May). The firm believes that the 2019 retail market will see a quiet second half with no big headline deals.

Retail sales over the January to May period continued their steady decline, falling by -1.8% (YoY). The overall prime shopping street rent fell by -1.2% QoQ with Central district dropping the most at -3.8% over Q2. In the major shopping mall segment, rental figures (base rents) remained generally steady. F&B establishments are the major tenants of the newly opened OP Mall in Tsuen Wan (Ruby Tuesday - 5,000 sf space; Hadilao Hotpot restaurant - 8,000 sf for HK$400,000/m).

The new bridge and rail links brought a steady stream of same day Mainland visitors (+20.7% YoY over Jan to May 2019) which was not reflected directly in retail sales. This is believed to be due to the weaker spending power of the Mainland tourists as a result of the weakening of the RMB. In addition, the on-going U.S.– China trade tensions are still having a negative impact on consumers.

New market trends are emerging rapidly in Hong Kong and Southeast Asia:

• Brands are turning to augmented reality (AR) for new customer experiences

For example, an IKEA app allows users to place to-scale 3D furniture in their homes; Benefit Cosmetics is encouraging customers to try on different eyebrow shapes before they shape their real ones; M.A.C. Cosmetics is the first brand to embrace this alpha feature by launching an AR Beauty Try-On campaign.

• Retailers are thinking of new green initiatives and are receiving support from customers

The use of banana leaves for packaging vegetables and other fresh produce was initiated by Rimping Supermarket in Thailand, and then adapted by major supermarkets in Vietnam and Indonesia (e.g. Big C, Lotte Mart, Bintang). Although still in its testing phase, the idea is being well received by shoppers and retailers have reported a boost in sales for products packaged this way.

Mr. Simon Smith, Senior Director, Research & Consultancy said: “Trade tensions are hitting businesses across southern China and consumers are spending less on big ticket items as a result. Landlords today seem to be more flexible when renewing existing tenants and are open to reducing rents if necessary.”

Mr. Nick Bradstreet, Managing Director, Head of Leasing said: “The market lacks the momentum for active growth with unstable external factors having a powerful effect. Despite the slowdown in retail figures, we see that new technologies are being adapted to upgrade the customer experience, changing the retail landscape.”

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