The Hong Kong retail property sector is poised on the cusp of an exciting new era with improving consumer confidence and near-exponential growth in affluent Mainland visitors, according to a Jones Lang LaSalle research.
The JLL paper ‘The Changing Landscape of the Retail Property Market’, reports that retail rents, which are often based on turnover, have declined some 3% from the beginning of 2003, compared with the office sector that has declined 23% and residential units that has declined 14%.
While retail rents in ‘secondary’ locations fell along with the drop in retail sales, prompted by weak consumer market and sentiment, retail premises in strategic and prime locations were heavily sought after, and in some cases actually achieved higher rentals on lease renewals or with new tenants.
Commenting on the phenomenon, Head of Research, Greater China at Jones Lang LaSalle, Dr Nelson Wong says there are six essential elements that are of specific importance to the retailing business in prime commercial areas, namely Domestic Consumption, Tourism, Social Environment, Retail Repositioning, New Build and Redevelopment Opportunities.
Recognising that local consumption was subdued and that many retailers have retrenched, Dr Wong remarked that there are signs of a turn in the market with consumer confidence trending up in recent months.
He stressed that the acute SARS impact on confidence was short lived and that was borne out by research by MasterCard International.
“Actually, retail sales have bounced back relatively strongly since July, and growth in retail sales was recorded in both August and September, the first in two years. We think that this will continue in 2004,” Dr Wong says.
Of the six essential market elements, tourism has seen a structural change triggered by the two-fold growth in Mainland Chinese visitors to 6.8 million in 2002 from 3.2 million in 1999, outpacing the rest of the world.
The increasingly affluent Mainland visitors, who typically spend less on accommodation than other visitors, but much more on shopping, they accounted for some 48% ($HK14.7 billion) of the total visitor spend on shopping in 2001.
On the shopping environment, the Jones Lang LaSalle paper cited Government and private developer-financed beautification schemes that have helped draw a higher level of pedestrian flow.
“In recent years, “flagship” or “concept” stores and changes in the retail mix have also helped redefine the retail scene, creating an enhanced retail experience and an increase in the value of surrounding retail space. Added restaurant and entertainment attractions have added further to the attraction and value of one-stop-shop malls,” Dr Wong says.
Retail property values have also been supported by the shortage of space in prime areas, which account for only 20% of the total space available.
Jones Lang LaSalle estimates that between 2004 and 2008 a total of about 5.5 million square feet (gross) will come onto the market, but that much of this space will be located in decentralised districts, leaving just 600,000 sq ft in core commercial areas.
“The retail sector will continue to benefit from the improvement in Hong Kong’s economy. This will be driven by a vibrant tourism industry, better retail environment and the repositioned retail offer,” concluded Dr Wong.
