Hong Kong retail rents predicted to fall in 2016: industry

Rents and prices of prime street shops in Hong Kong will continue to fall next year as big-ticket item retailers adopt a conservative business strategy amid declining retail sales.

Consensus views from property consultants for prime street shop rents are a decline of another 10-15 per cent next year.

Prices will drop a further 15-20 per cent over the year as the market is still wrestling with a slew of unfavourable factors.

Spending from mainland Chinese is seen remaining sluggish and the anti-corruption drive, set by the central government led by President Xi Jinping, looks set to continue unabated in its intensity, they said.

Prime street shop rents and prices have already seen a rapid pace of adjustment, falling by between 20 per cent and 30 per cent this year, said Simon Smith, Head of Research & Consultancy at Savills Hong Kong. He said the adjustment so far was faster than he had predicted.

“(High street rents) could see a further 10 per cent to 15 per cent fall in 2016 while prices, which have been slower to move, should see a further 15 per cent to 20 per cent reduction over the year.” said Smith.

Retail sales in Hong Kong dropped for the eighth consecutive month in October amid a decline in the number of mainland Chinese tourists flocking to Hong Kong.

Sales in October amounted to HK$37.2 billion - a 3 per cent decline year on year - after a fall of 6.3 per cent in September, the Census and Statistics Department reported on November 30.

The value of sales of jewellery, watches and valuable gifts decreased by 17 per cent over the month, following a year-on-year fall of 22.9 per cent in September.

The mainland’s anti-corruption campaign and changing spending patterns of Chinese tourists were cited as the reason for the pull-back in demand for luxury goods in Hong Kong.

JLL said high street shop rents likely to finish the year down 20-25 per cent this year but will probably be down another 10-15 per cent in 2016.

“In their desire to retain clients in what looks set to be an increasingly competitive market, landlords are now starting to offer tenants very competitive terms for lease renewals,” Helen Mak, senior director, retail services, at Colliers International, said.

Kevin Lam Ying-wai, director of DTZ/Cushman & Wakefield, said top tier street shops such as Russell Street in Causeway Bay saw rents down as much as 40 per cent this year and will be stable next year.

“We may see a further decline of 5 per cent. But street shops in second tier streets will drop further by 10-15 per cent in 2016 as demand is weak.” said Lam.

Prime shopping centre rents are still holding up—and likely to record slight growth in 2015—but pressure is building on landlords to lower base rents.

The outlook for 2016 is for prime shopping centre rents to trend sideways though risks are towards the downside, according to JLL.