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  • Jul 26, 2014
  • Updated: 9:59am
PropertyHong Kong & China
PROPERTY

Prime rents under pressure as mainland China tourist numbers decline

Changes in shopping habits of mainland tourists will see a fall off in prime rentals, offset by shift to northern districts

PUBLISHED : Monday, 12 May, 2014, 2:58am
UPDATED : Monday, 12 May, 2014, 2:58am

A decline in retail sales, combined with an unexpected drop in mainland tourist arrivals for this month’s Labour Day holiday, are signals pointing to a reversal of rising retail rents in Hong Kong.

Rents for high end shops in some prime districts, such as Causeway Bay, could see steeper declines than previously expected, according to property market observers.

However, the silver lining is that retail developments in decentralised locations, such as the northern districts, will benefit from mainland visitors going beyond the traditional districts for lower-priced products.

“When we saw disappointing data in retail sales in January and February, we [believed] this was because of seasonal holiday factors. But when March sales fell worse than expected, and the number of mainland arrivals fell last week, it told us something,” said Helen Mak, a senior director at Colliers International.

While cultural conflicts between locals and mainlanders is cited as a cause, the bigger picture is that Hong Kong retailers face slowing growth momentum due to China’s anti-extravagance rules which have deterred luxury consumption in Hong Kong, and also the changing consumption patterns of mainland visitors.

Colliers earlier predicted overall rentals in major shopping districts would fall 5 per cent over the next 12 months as more vacant stock became available.
“Now I expect rentals in Causeway Bay will drop 10 per cent this year … after the latest negative news,” Mak said.

After rising a combined 6.7 per cent in the first two months of 2014, retail sales in Hong Kong fell by 1.3 per cent year on year in March.

“While one month does not make a trend, it is worth noting that the last time Hong Kong retail sales growth was actually negative was back in the first half of 2009 during the immediate aftermath of the 2008 credit crisis,” said a Barclays report. 

Mainland tourist arrivals dropped in the traditional three-day holiday starting May 1, unexpectedly declining 1.6 per cent year on year, the first drop since 2003 when individual tourists from China were allowed to visit.

“There is a bump in sales [during holidays] but in terms of year on year growth, you won’t see it during holiday periods like a few years ago. It’s actually the non-holiday periods that see [year on year] growth,” said Barclays consumer analyst Phoebe Tse. 

Rating agency Fitch expects retailers, especially those targeting mainland tourists, to delay or halt expansion. 

“Rentals at prime street level shops catering to mainland tourists, particularly those selling luxury items, may face significant downward pressure,” said Fitch. Fitch expects shopping centre spot rents to remain flat or grow marginally this year. Hence, positive rental reversion is still achievable for centres in 2014, though it will not be as strong as previous years.

Tom Gaffney, head of retail at JLL Hong Kong, predicted flat growth in rents this year, but he added that the situation was not grim because, although recent numbers of mainland visitors declined modestly, the absolute number remains high.

In fact, the increasing proportion of mainland middle-class affluence is reflected by faster growth in same-day visitor arrivals. In the first six months of last year, they accounted for 65.4 per cent, or 8.26 million tourists.

Operators of shopping centres said the one-off data from the Labour Day holiday did not represent the whole picture.

“The holiday this time was too short to attract mainland visitors from the northern provinces. We saw visitors mainly from Guangdong province,” said general manager of Sun Hung Kai Properties’ leasing department, Maureen Fung Sau-yim.

She added that rents in secondary streets in traditional shopping areas will face greater pressure as a result of increasing vacancy levels.

But rental growth potential will be seen in northern districts such as Yuen Long, Fanling and Tuen Mun as improved infrastructure brings more same day visitors to the city – shoppers who would not necessarily head for the city centre if all they want to buy are daily necessities.

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This article is now closed to comments

Dao-Phooy
And what about us - locals? What about our shopping experience? Hope the rents keep on falling!
donniemcm
"the increasing proportion of mainland middle-class affluence is reflected by faster growth in same-day visitor arrivals."
If one has cross the shenzhen border, they will see a crowd sitting at the exit with a pyramid of products : milk powder, food, yakult (!), etc.
Those are the ones who cross are counted as "tourists" and indeed they will shift the spending to the north of the territory as their "suppliers" are shops close to the border.
Also don't expect them to stay in a hotel, eat during the day or anything else. They just empty the local stock. So no need to defend them and say it's good for tourism and jobs.
 
 
 
 
 

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