savills.com.hk/research 01
BriefingRetail leasing February 2016
Savills World Research Hong Kong
SUMMARYRetailers remain under pressure and examples of lease surrenders and requests for rental reductions are on the increase.
Having fallen by 10.6% during Q4/2015, our prime street shop retail rental index ended 2015 30% down on the year representing a 38% fall from the peak in 2013.
Not only are rents falling, tenant profiles are also changing as luxury fashion gives way to mid-market fashion, ‘leisure wear’ and lifestyle brands.
Luxury retailers have definitely been hit hardest and there are plenty
of examples of lease surrenders and requests for rental reductions as sales collapse by 30% or more.
Prime shopping mall rents have remained on a steady upward trajectory even if luxury brands are releasing space.
New Territories malls appear to be doing reasonably well as local demand for convenience goods and same visitor spending both seem to be holding up well.
"While street shop rents have been hard hit by the downturn, shopping mall rents are holding up well. Luxury fashion is bearing the brunt while mid-market fashion, leisure wear and lifestyle brands appear to be thriving.” Simon Smith, Savills Research
Image: Central
Briefing | Hong Kong retail leasing February 2016
savills.com.hk/research 02
Market commentaryHong Kong’s retail market began to buckle as far back as Q1/2013 when China began its anti-corruption drive. Since then a series of new policies (import tax reform, Renminbi depreciation and reform of multiple-entry visas) and events (Occupy, stock market turbulence) have conspired to put further pressure on retailers. Having fallen by 10.6% during Q4/2015, our prime street shop retail rental index ended 2015 30% down on the year representing a 38% fall from the peak in 2013.
More vulnerable to the changing winds of economic fortune, street shop rents have fallen hardest and there are plenty of examples of rents being reduced anywhere between 20% and 40% at the end of a three-year lease. But not only are rents falling, tenant profiles are also changing as luxury fashion gives way to mid-market fashion, ‘leisure wear’ and lifestyle brands. It should be noted that during the previous Asian Financial Crisis in 1997/98, street shop rents fell in the order of 50% to 60% peak-to-trough.
As both same day and overnight visitor numbers fall alongside per capita spending, what do retailers think? Luxury retailers have definitely been hit hardest and there are plenty of examples of lease surrenders and requests for rental reductions as sales collapse by 30% or more. Meanwhile jewellery and cosmetics brands favoured by mainlanders have also taken a hit with sales reportedly down 20% to 30%. Other brands appear to be thriving and we note that Adidas, Nike and New Balance are all active, alongside Uniqlo, Furla, and other high street chain stores.
Prime shopping mall rents have remained on a steady upward trajectory even if luxury brands are releasing space. Landlords have not been immune however, and have been shifting focus to new-to-town brands, lifestyle offerings and F&B to maintain footfall and support rents. Larger market dominant malls with a greater mass have been exerting a greater gravity on local markets at the expense of smaller, less well
GRAPH 1
Retail sales and rents, 1997–2003 (AFC-SARS)
Source: Source: Census and Statistic Department, Savills Research & Consultancy
40
50
60
70
80
90
100
110
120
Q197
Q2 Q3 Q4 Q198
Q2 Q3 Q4 Q199
Q2 Q3 Q4 Q100
Q2 Q3 Q4 Q101
Q2 Q3 Q4 Q102
Q2 Q3 Q4 Q103
Q2 Q3 Q4
Q1/
1997
=10
0
Retail sales Shopping centre rents Street shop rents
-20.2%
-37.4%
-34.5%
GRAPH 2
Mainland overnights vs same day, 2003–2015
Source: Hong Kong Tourism Board, Savills Research & Consultancy *Per capita visitor on shopping refers to the figures in the first half of 2015
GRAPH 3
Monthly retail sales, (YoY % changes), Jan 2006–Dec 2015
Source: Census and Statistics Department, Savills Research & Consultancy
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jan-
2006
Ap
r-20
06Ju
l-20
06O
ct-2
006
Jan-
2007
Ap
r-20
07Ju
l-20
07O
ct-2
007
Jan-
2008
Ap
r-20
08Ju
l-20
08O
ct-2
008
Jan-
2009
Ap
r-20
09Ju
l-20
09O
ct-2
009
Jan-
2010
Ap
r-20
10Ju
l-20
10O
ct-2
010
Jan-
2011
Ap
r-20
11Ju
l-20
11O
ct-2
011
Jan-
2012
Ap
r-20
12Ju
l-20
12O
ct-2
012
Jan-
2013
Ap
r-20
13Ju
l-20
13O
ct-2
013
Jan-
2014
Ap
r-20
14Ju
l-20
14O
ct-2
014
Jan-
2015
Ap
r-20
15Ju
l-20
15O
ct-2
015
Value Index Volume Index
Yea
r-o
n-Y
ear
Double-digit growth
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
0
5
10
15
20
25
30
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
No
of
visi
tors
, mill
ions
Overnight visitor arrival (LHS) Same-day visitor arrival (LHS)Per Capita overnight visitor on shopping (RHS)* Per Capita same-day visitor on shopping (RHS)*
HK
$
February 2016
savills.com.hk/research 03
Briefing | Hong Kong retail leasing
Nick BradstreetManaging DirectorHead of Leasing+852 2842 [email protected]
Simon SmithSenior DirectorAsia Pacific+852 2842 [email protected]
Savills Retail
Please contact us for further information
Savills plcSavills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 700 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East.
This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.
Savills Research
Susan MaclennanDeputy Senior Director Retail+852 2840 [email protected]
Kathy LeeDirectorRetail Consultancy+852 2842 [email protected]
TABLE 2
Prime street shop and shopping centre rents, Q4/2015
Source: Savills Research & Consultancy
Q4/2015(%) 2015 (%) 2016F (%)
Shopping centre rents 0.8 +3 0 to +5
Prime street shop rents -10.6 -30 -10 to -15
located peers. New Territories malls appear to be doing reasonably well as local demand for convenience goods and same visitor spending both seem to be holding up well. Again, the larger destination centres such as Tuen Mun Town Plaza and New Town Plaza are outperforming.
As the wealth effect from the local residential market begins to fizzle and mainland China’s economic fortunes falter, our earlier predictions of a 10% to 15% decline in street shop rents and a 0 to 5% increase in prime shopping centre rents in 2016 may prove to be overly optimistic.
GRAPH 4
Prime street shop rental indices, Jan 2006–Dec 2015
Source: Savills Research & Consultancy
0
50
100
150
200
250
300
350
400
450
500
Q1
03 Q2
Q3
Q4
Q1
04 Q2
Q3
Q4
Q1
05 Q2
Q3
Q4
Q1
06 Q2
Q3
Q4
Q1
07 Q2
Q3
Q4
Q1
08 Q2
Q3
Q4
Q1
09 Q2
Q3
Q4
Q1
10 Q2
Q3
Q4
Q1
11 Q2
Q3
Q4
Q1
12 Q2
Q3
Q4
Q1
13 Q2
Q3
Q4
Q1
14 Q2
Q3
Q4
Q1
15 Q2
Q3
Q4
Overall Central Causeway Bay Tsim Sha Tsui Mongkok
Q1/
2003
=10
0