The slowdown in economic growth on the mainland and in Hong Kong, and in the growth of visitor arrivals, could signal an end to the sharp increase in retail rents, say analysts.
After almost doubling in the last three years as retailers scrambled for prominent locations in tourist hot spots, rents in prime Hong Kong shopping districts are now likely to remain unchanged or at best show only modest growth, they say.
'In the short run, retail rents are close to their peak,' said Joe Lin, senior director of retail services at property consultancy CBRE.
'Until recently, retailers were willing to pay higher rents for shops in prime locations because retail sales were growing at such a high rate,' Lin said. 'But they have turned cautious this year because of the slowdown in retail sales and tourist arrivals from the mainland.'
Data from the Hong Kong Census and Statistics Department shows that total retail sales grew by 18.3 per cent in 2010 and by a further 24.9 per cent last year, to HK$405.3 billion. But the data shows that year-on-year growth in sales peaked in July at 29.1 per cent, and has since declined steadily to 17.3 per cent in the first quarter of this year.
Hong Kong Tourism Board data shows that growth in tourist arrivals from the mainland slowed to 21.1 per cent in the first quarter of this year, from 67.2 per cent in the first quarter of last year.
Official data shows Hong Kong economic growth slowed from 3 per cent in the final quarter of last year, to just 0.4 per cent in the first quarter of this year, while the mainland economy grew by 8.1 per cent in the first quarter from a year earlier, down from 8.9 per cent in the previous three months and a three-year low.
Helen Mak Hoi-lun, director of retail services at consultancy Colliers International Hong Kong, said she had revised her expectations for growth in retail rents.
'Earlier this year we forecast that retail rents in the major shopping districts, Tsim Sha Tsui, Causeway Bay, Central and Mong Kok, would rise 12 per cent on average, and rents in most prime location could see growth of more than 12 per cent. Now we have concerns about rental growth.'
For retail landlords the slowing growth in spending and mainland tourist arrivals signals the end of a period of skyrocketing rents.
'I don't think retail rents will continue to show the sharp increases we have seen in the last few years,' said Edwin Leong Siu-hung, chairman of property investor Tai Hung Fai.
A veteran property investor and owner of many shops in the city, Leong cited the example of a 1,200 sq ft shop on Canton Road in Tsim Sha Tsui, which he leased to cosmetic retailer Colourmix three years ago for HK$700,000 a month. With the lease due to expire in the middle of next year, he lined up a new tenant, Puyi Optical, at a rent of HK$2 million a month.
'I thought rents had then peaked, as the new rent was more almost three times the old rent - but just a few weeks later a mainland luxury brand offered to pay a rent of HK$3.3 million a month.'
While an era seems now to be drawing to a close, Leong said that, although rents were close to their peak, as long as mainland shoppers continued to visit Hong Kong they might show modest growth from their present levels.
'Rents in core shopping districts won't fall unless the central and Hong Kong governments stop mainland individual visits,' he said.
The year-on-year growth in Hong Kong retail sales at its peak last July. The growth rate for this year's first quarter was 17.3 per cent