Retail properties

Hong Kong retail property market braces for more bad news... after prime rents have already collapsed up to 70pc

PUBLISHED : Tuesday, 22 November, 2016, 3:03pm
UPDATED : Tuesday, 22 November, 2016, 7:52pm

The outlook for the retail market remains gloomy due to the fall in tourist arrivals and weaker sales, according to property consultants.

Rental rates on average will fall 5-10 per cent after a sharp decline in 2016, while capital values will drop 10-15 per cent next year, says Colliers International.

“The focus should shift to local spending as we have seen signs of growth in this segment back to the 2012 level. To remain competitive, retailers should offer an authentic shopping experience, introduce niche brands to the market and make good use of social media for promotions,” Cynthia Ng, director of retail services at Colliers said.

Hong Kong’s economy grew 1.9 per cent in the third quarter on year, and the government’s midterm forecast is for 3 per cent annualised growth for 2017-2020. The city’s retail sales slumped 9.6 per cent in the first nine months of the year.

The gloomy projection came as US fashion chain Abercrombie & Fitch said on Friday that it would close its four-storey ­flagship store in Central as early as next year amid the economic downturn and a slump in shoppers from the mainland.

The 25,600 sq ft store at Pedder Building on ­Pedder Street opened in 2011, paying HK$7 million in rent per month, double that of previous tenant Shanghai Tang.

It has initiated an early exit ­before its lease expires in 2019.

Earlier this month, US fast-fashion brand Forever 21 said it would close its flagship store in the heart of the Causeway Bay shopping district late next year.

Property agents said Hong Kong was gradually losing its appeal to mainland tourists as a prime shopping destination after 10 years of high retail growth.

However, the landlord of the Abercrombie & Fitch shop is still confident in the long-term outlook of prime properties.

“The retail property market remains optimistic in the medium and long term for grade A properties. The apparent slump, protracted or not, is likely a cyclical phenomenon,” said Sherman Tang, the owner of Pedder Building.

Commenting on the departure of Abercrombie & Fitch, Tang said: “We are in an active process of revamping the tenant mix (for the building)”.

Property consultant Savills said the hit was seen at street shop rents which are now down 50-70 per cent from their peak in what has been a market collapse.

The property consultant said in a November research report that prime streets retailers are tending to renew at a 30-40 per cent discount while secondary areas are seeing increased vacancy.