Hong Kong retail rent market weakens further

Hong Kong retail rents weakened further in the third quarter – and worse is to come, according to CBRE’s quarterly review.

Against a backdrop of a seven per cent fall in watch and jewellery sales in July and August combined, there was an increase in lease surrenders by luxury brands and high-value retailers on tier one streets, the review said.

“Overall rents in core locations slumped 9.1 per cent quarter on quarter, the largest quarterly decline recorded since 1998.”

Among the four core submarkets, rents in Causeway Bay fell the most severely – by 11 per cent quarter on quarter – taking the total year to date decline to 22 per cent.

“Rents in Central, Tsim Sha Tsui and Mong Kok declined by 9.2 per cent, 7.0 per cent and 7.6 per cent quarter on quarter, respectively.

“Mid-range retailers are attempting to regain their foothold in prime locations. Cosmetics retailers, sportswear brands and fitness centers were the most active sectors in Q3.”

Joe Lin, executive director, retail services, CBRE Hong Kong said the top tier retail market led the deterioration.

“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.”

Lin predicts average rents for space in core retail locations will continue to decline in Q4, with the full year rental downward adjustment for 2015 projected at between 20 and 25 per cent.

“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.”

Total retail sales in July and August combined, fell by 4.2 per cent year on year.

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