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George Hongchoy, CEO of The Link Management. Photo: SCMP

Slower but sure growth ahead for retail property

Paggie Leung

Growth in retail property rents and prices will slow next year, according to landlords and analysts, but the sector will outperform other property types.

"Global economic uncertainties are likely to continue to affect markets in China and Hong Kong in 2013. The slowdown in growth of local retail sales has been more apparent in the high-end and discretionary sectors in 2012," said George Hongchoy, the chief executive of The Link Management.

The Link is the trust manager of the Link Reit, which owns 182 retail and car park properties, mostly in public housing estates.

"Local retail sales might not be able to maintain the same growth momentum we saw in the past year. However, we remain encouraged, albeit cautiously, by the limited supply of retail space for 2013," he said, adding that since non-discretionary spending, or spending on essential items, remained stable, the Link Reit expects its rental growth to continue steadily.

According to property consultancy Colliers International, retail rents rose by about 14 per cent this year while their value appreciated 27 per cent. But it forecasts a slowdown in rents and price growth next year, putting the estimates at only 7 and 11 per cent respectively.

"There are weakening signs in sales of top-end goods," said Simon Lo Wing-fai, a director of research and advisory at Colliers.

Census and Statistics Department data shows the sales volume of jewellery, watches, clocks and other valuables fell by 5.8 per cent year on year in October.

"We expect the number of tourists coming to Hong Kong will continue to grow, but retail rents will not jump as rapidly as in the last few years, when rents climbed by over 10 to 20 per cent annually," Lo said.

He said competition among potential tenants would be less intense than in the past and tenants would be more careful when committing to high rents.

Pointing out that the retail market turned quieter in the second half of this year with fewer major contract renewals, real estate broker DTZ's head of business space Kevin Lam said retailers, especially in the luxury goods sector, were more cautious about the sales outlook and had slowed business expansion.

According to property consultancy Jones Lang LaSalle, supply of retail space in Hong Kong remains tight, despite weaker consumption. V City in Tuen Mun and Midtown at Tang Lung Street in Causeway Bay, which will generate a total area of about 469,000 square feet, are the only notable retail developments due for completion in the coming year.

"The demand-supply imbalance in the market will continue to drive up rents and against this backdrop, we expect more retailers to look into opportunities in the secondary streets in traditional prime retailing areas and non-core locations," the firm's head of retail, Tom Gaffney, said.

"In spite of the high rental environment, we are still optimistic about the prospects of the retail sector as foreign retailers still view Hong Kong as the perfect springboard to enter the mainland market while mainland retailers are increasingly using Hong Kong as their springboard to international markets."

Jones Lang LaSalle expects rents of high street shops to grow 5 to 10 per cent while rents at prime shopping centres are expected to climb 1 to 5 per cent next year. Property consultancy Knight Frank predicts retail rents in prime locations to rise by 8 to 10 per cent.

This article appeared in the South China Morning Post print edition as: Slower but sure growth ahead for retail property
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