– January 2019

MARKET IN MINUTES Retail Leasing Savills Research

Savills team

Please contact us for further information

RETAIL

Nick Bradstreet Managing Director Head of Leasing +852 2842 4255 [email protected]

Barrie Chan Deputy Senior Director +852 2842 4527 2019 gets off to a positive start [email protected]

A weak second half of 2018 was given a boost by the completion of new cross- RESEARCH border transport links. Simon Smith Senior Director • Despite high hopes of a resurgence in Mainland spending • Shopping centre and street shop rents remained fl at over Asia Pacifi c last year after a strong fi rst half, higher numbers of same Q4/2018 as landlords and retailers are wary given current +852 2842 4573 day visitors and a weak Renminbi meant lower per capita uncertainties surrounding trade, stock market valuations, [email protected] spending on shopping and unchanged retail rents by year- a weak Renminbi and rising interest rates among other Kathy Lee end. factors. Director Retail Consultancy • Total numbers of PRC visitors actually rose over the fi rst 11 • 2019 will see elevated supply levels totaling 2 million sq +852 2842 4591 months of 2018 by 14% YoY thanks to the completion of new ft and if the Renminbi remains weak, we can expect only [email protected] road and rail links with the mainland. modest rental gains. Early indications are that the year has Savills plc got off to a positive start, however. Savills is a leading global real estate service provider listed on • Sales over the Christmas holiday period remained relatively the London Stock Exchange. The indiff erent for most retailers with apparel, luxury leather company established in 1855, has a rich heritage with unrivalled goods and activewear retailers reporting a better-than- “ The well-observed shift growth. It is a company that leads rather than follows, and now has expected performance. over 600 offi ces and associates towards higher same day throughout the Americas, Europe, Asia Pacifi c, Africa and the Middle • The new cross-border transport infrastructure attracted East. This report is for general mainland visitor numbers and informative purposes only. It may more tourists helping same-day visitor arrivals from the not be published, reproduced or quoted in part or in whole, nor may mainland surge by 40.3% YoY in November to total three lower per capita spending it be used as a basis for any contract, prospectus, agreement million after the opening of the two links. or other document without prior continued in 2018 and we consent. Whilst every eff ort has been made to ensure its accuracy, • For now, it seems that many of the increased visitor Savills accepts no liability believe that 2019 can expect whatsoever for any direct or numbers are day trippers without big budgets for shopping, consequential loss arising from its but despite this some modest uptick was noted in sales of use. The content is strictly more of the same.” copyright and reproduction of the pharmaceuticals, F&B and cosmetics in the areas benefi ting whole or part of it in any form is prohibited without written from the cross-border bridge and rail links. SIMON SMITH, SAVILLS RESEARCH permission from Savills Research. savills.com/research 1 Retail Leasing

MARKET COMMENTARY forecasts (an average daily passenger GRAPH 1: Retail Sales Value and Retail Sales Value patronage of 50,000 vs 80,000 forecast in Index, January 2013 to November 2018 Both prime street shop and shopping centre rents failed to make any big gains during 2018 December 2018). Retail Sales Value (RHS) Retail Sales Value Index (LHS) and rental growth had all but ground to a halt The longer term impact of the new 40% 60 by Q4/2018 due to a weak sales performance infrastructure on the overall Hong Kong retail scene and the luxury segment in 30% in the operating market. Growth in retail 50 sales decelerated to only 1.4% YoY in particular, has yet to be seen as the spending 20% November, the slowest growth rate registered patterns of d ay-trippers diff er substantially 40

HK$ million HK$ since June 2017. Although seasonal sales from their overnight counterparts. Mainland 10% resulted in some positive signs with some same-day visitors tend to spend much less on 30 shopping than overnight visitors (typically

YoY% retailers reporting a better-than-expected 0% performance over the Christmas period 50% less) and they focus more on daily 20 necessities, pharmaceutical products and -10% including mid-market apparel, activewear and luxury leather goods, the performance cosmetics. 10 -20% of core sectors such as jewellery and watches As a result of the strong tourist demand for remained relatively sluggish, with some cosmetics and personal care products, related -30% 0 retailers reporting single-digit declines in retailers are expanding rapidly in popular like-for-like sales over Q4/2018. tourist districts to capture the growing Jul-17 Jul-15 Jul-13 Jul-18 Jul-16 Jul-14 Jan-17 Jan-15 Jan-13 Jan-18 Jan-16 Jan-14 Oct-17 Oct-15 Oct-13 Apr-17 Oct-18 Apr-15 Apr-13 Oct-16 Apr-18 Oct-14 Apr-16 Apr-14 Two new cross-border transport links have number of visitors (see table). Source Census and Statistics Department, Consumer sentiment among both local Savills Research & Consultancy pulled in more tourists since they became operational in September and October, Hongkongers and mainland tourists was bringing in 40.3% more same-day visitors clouded by numerous negative factors GRAPH 2: Mainland Visitor Arrivals, YoY in November while mainland overnight throughout the second half of 2018 including January 2013 to November 2018 visitor numbers rose by only 6.1% over the rising interest rates, a weak Renminbi and Overnight (LHS) Same-day (LHS) same period. Not surprisingly, this surge double negative wealth eff ects stemming YoY Change: Same-day YoY Change: Overnight in day-trippers has given a boost to retail from tumbling stock indices and a 6 60% markets in areas surrounding the two new languishing property market. Landlords 50% of street shops and shopping malls remain 5 cross-border bridge and rail links. 40% Suburban retail areas including Tung wary of raising rents too aggressively, if at 30% 4 Chung, Yuen Long and Tuen Mun are all. Despite the short rebound in the second 20% benefi ting from the Hong Kong-Macau- quarter, both prime street shop and shopping 3 10% Zhuhai Bridge, the 55-km bridge has centre rents remained largely static over 2018. In the prime street shop segment, zero 0% recorded average daily patronage of 68,500 2 people from October 24th to December growth over the previous quarter was -10% Persons (million) Persons 23rd. Elements, the premium shopping mall recorded in most districts in Q4, with the -20% 1 adjacent to the West Terminus exception of which witnessed -30% Station has already seen a noticeable increase a decline of -0.9% QoQ due to a weaker 0 -40% in mainland visitors since the opening of performance at Park Lane Shopper’s the new cross-border railway link even if Boulevard. Whilst shopping malls in Jul-17 Jul-15 Jul-13 Jul-18 Jul-16 Jul-14 Jan-17 Jan-15 Jan-13 Jan-18 Jan-16 Jan-14 Oct-17 Oct-15 Oct-13 Oct-18 Apr-17 Apr-15 Oct-16 Apr-13 Apr-18 Oct-14 Apr-16 Apr-14 actual traveler numbers were below previous Kowloon were largely responsible for the Source HK Tourism Board, Savills Research & Consultancy

TABLE 1: New Leases Of Personal Care, Pharmacy And Cosmetics Retailers, October to December 2018

TENANT LOCATION SIZE (GFA) RENTAL

Colourmix CWB – 18 Russell Street 1,000 sq ft HK$900,000 (HK$900 psf per mth)

Mannings CWB – Pak Sha Road 1,500 sq ft HK$300,000 (HK$200 psf per mth)

Sa Sa CWB – Russell Street 1,000 sq ft HK$700,000 (HK$327 psf per mth)

Watson’s CWB – 520 Lockhart Road 1,005 sq ft HK$290,000 (HK$289 psf per mth)

BB Beauty TST – Carnarvon Road 1,200 sq ft HK$420,000 (HK$350 psf per mth)

Golden Cosmetics & Beauty TST – 10-10A Humphreys Avenue 1,000 sq ft HK$175,000 (HK$175 psf per mth)

Lung Wah Pharmacy TST – Star House, 3 Salisbury Road 1,674 sq ft HK$850,000 (HK$508 psf per mth)

Watson’s TST – Mirador Mansion, 83-97 1,400 sq ft HK$400,000 (HK$286 psf per mth)

Pharmacy TST – 4,600 sq ft HK$1 million (HK$217 psf per mth)

Pharmacy TST – Universal Commercial Building 1,805 sq ft HK$1 million (HK$554 psf per mth)

Watson’s MK – 254 Sai Yeung Choi Street South 1,188 sq ft HK$150,000 (HK$126 psf per mth)

Source Savills Research & Consultancy savills.com/research 2 Retail Leasing

GRAPH 3: Savills Shopping Centre Rental Index, TABLE 2: Shopping Centre Rental Changes Q1/2008 to Q4/2018 All HKI KLN NT 600 Q4/2018 (YOY%) 2018

500

Hong Kong Island 0.0% 3.0% 400

300 Kowloon -0.4% -0.4%

Q1/2003=100 200

New Territories 0.0% 2.6% 100

0 Overall -0.2% 1.6% Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 11 Q1 17 Q1 12 Q1 15 Q1 13 Q1 18 Q1 18 16 Q1 14 Q1 14 10 Q1 10 08 Q1 09 Q1 Source Savills Research & Consultancy Source Savills Research & Consultancy

GRAPH 4: Savills Prime Street Shop Rental Index, TABLE 3: Prime Street Shop Rental Changes Q1/2008 to Q4/2018 All Central Causeway Bay Tsim Sha Tsui 500 Q4/2018 (YOY%) 2018 450

400 Central 0.0% +3.8% 350

300 Causeway Bay 0.0% +2.4% 250

200 Tsim Sha Tsui -2.1% 0.0% Q1/2003=10 150

100 Mong Kok -1.2% 3.9% 50

0 Overall -0.9% 2.4% Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 11 Q1 17 Q1 12 Q1 15 Q1 13 Q1 18 Q1 18 16 Q1 14 Q1 14 10 Q1 10 08 Q1 09 Q1 Source Savills Research & Consultancy Source Savills Research & Consultancy

marginal decrease with a -0.3% change over and this will therefore have less of an impact TABLE 4: Major New Shopping Centre Supply In 2019 the previous quarter, rents in malls on Hong on prime rents. We forecast retail rents will Kong Island and in the rise modestly by less than 5% this year but remained unchanged. note that 2019 has already got off to a positive GFA OPENING start and risks are to the upside. PROJECT REGION DEVELOPERS (SQ FT) DATE 2019 MARKET OUTLOOK A total of 2.3 million sq ft of new supply The market outlook for 2019 is cautiously will come on stream in 2019, the highest Tung Swire positive as market fundamentals are level since 2006. Half of the new supply is Outlets 345,000 Q1 Chung Properties Extension expected to remain relatively stable. The accounted for by New World Development’s healthy labour market and an all-time low landmark mixed-used project in Tsim Sha

Nam unemployment rate should continue to Tsui, . K11 MUSEA, the V Walk 298,000 Q2 SHK Properties Cheong support local market consumption, while one-million sq ft shopping mall component is some positive progress in the US-China scheduled for completion in Q3/2019. Other trade dispute would help to ease macro- notable new additions to the market include Nina Mall Tsuen 120,557 Q2 Chinachem (Phase II) Wan economic uncertainties in China and the 345,000-sq ft extension of Citygate in reinforce confi dence. In view of the changing Tung Chung and Sun Hung Kai Properties’ profi le and spending patterns of mainland V Walk atop Nam Cheong MTR Station. Tsim Sha K11 MUSEA 1 mil Q3 New World Tsui visitors, Hong Kong’s retail market may shift The 298,000-sq ft mall in Nam Cheong has away from luxury, especially jewellery and already been fully leased and will open its Source Savills Research & Consultancy watches, to focus more on the mass market, doors in mid-2019.

savills.com/research 3