Retail Leasing Savills Research
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Hong Kong – April 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 Retail market limps into 2019 [email protected] Despite a less than impressive January and February, some sectors continue to RESEARCH do well including cosmetics and pharmaceuticals. Simon Smith Senior Director • Retail sales over January and February recorded their fi rst • Experiential retail is catching on fast as the most Asia Pacifi c decline since February 2017, falling by 1.6%. creative brands off er customers a more rounded in-store +852 2842 4573 environment. [email protected] • The retail leasing market itself posted a subdued Kathy Lee performance and shopping mall rents rose modestly driven • Some retailers are beginning to understand the aging Director mostly by Harbour City, while street shop rents fl atlined. demographic better which is more segmented than Retail Consultancy previously as the “soon-to-be-old” (55-64 yrs) can be +852 2842 4591 • We expect 2019 to see stable rents in the absence of any distinguished from the “elderly” (65-79 yrs) by their [email protected] major stimulus which would be necessary for robust growth. interests, incomes and activity levels. Savills plc Savills is a leading global real estate service provider listed on • New road and rail infrastructure linking Hong Kong more the London Stock Exchange. The closely with the mainland has resulted in more visitors, company established in 1855, has “ Causes of disruption in the a rich heritage with unrivalled but both have so far underperformed passenger volume growth. It is a company that leads rather than follows, and now has projections while attracting mostly budget shoppers. This retail market are appearing over 600 offi ces and associates throughout the Americas, Europe, could change though. Asia Pacifi c, Africa and the Middle in many diff erent forms East. This report is for general informative purposes only. It may • Evolving retail trends include a shift in some mainland not be published, reproduced or from demographics to new quoted in part or in whole, nor may spending towards a greater emphasis on quality and it be used as a basis for any contract, prospectus, agreement originality, and away from the mass produced and technology and changing or other document without prior mainstream. consent. Whilst every eff ort has been made to ensure its accuracy, spending preferences.” Savills accepts no liability whatsoever for any direct or • More retailers are taking responsibility for their own SIMON SMITH, SAVILLS RESEARCH consequential loss arising from its use. The content is strictly promotion and advertising, relying less on mall landlords copyright and reproduction of the and more on digital platforms, KOLs and celebrity whole or part of it in any form is prohibited without written endorsements among others. permission from Savills Research. savills.com.hk/research 1 Retail Leasing MARKET COMMENTARY MPM in Mong Kok for a monthly rent of GRAPH 1: Retail Sales By Sector, January 2013 to HK$450,000. In fact, the cosmetics sector is February 2019 Hong Kong retail sales slowed slightly by -1.6% over the fi rst two months of the year, growing in both the local and international Retail Sales Value (RHS) Food, Alcoholic, Drinks and Tabacco the fi rst decline recorded since February markets. Sephora, a multi-brand cosmetics Jewellery, Watches and Clocks and Valuable Gifts 2017. Sales of electrical goods and other retailer owned by LVMH Group, re-entered Clothing, Footwear, and Allied Products Other Consumer Goods: Medicines and Cosmetics consumer durable goods (-18.3% YoY) the Hong Kong market after they closed 70% 60 were hit hardest, while sales fi gures from their fl agship store in Mong Kok 10 years 60% ago. Sephora has pre-leased a 4,000-sq ft 50% 50 department stores and medicines and 40% cosmetics recorded growth of 4.2% and store at ifc Mall in Central. Internationally, 30% 40 HK BILLION 2.3% YoY making them the best performers French luxury fashion house Hermes has 20% over the period. Sentiment in the leasing announced a plan to launch their beauty 10% 30 market remained relatively ho-hum over the collection in 2020. 0% fi rst quarter as a result of the disappointing In the major shopping centre segment, -10% 20 -20% performance in the operator market and the Harbour Centre continued to outperform -30% 10 absence of positive stimulus from either the its rivals with its wider range of trade and -40% local or international markets meant little tenant off erings. According to Wharf Real -50% 0 RETAIL SALES VALUE INDEX (YOY%) INDEX VALUE SALES RETAIL change in rents. Estate Investment Company Limited’s 2018 The two new bridge and rail Annual Report, the complex generated an Jan-17 Jan-15 Jan-13 Jan-18 Jan-19 Jan-16 Jan-14 Sep-17 Sep-15 Sep-13 Sep-18 Sep-16 Sep-14 May-17 May-15 May-13 May-18 May-16 May-14 infrastructure projects have brought average of HK$102 million of retail sales Source Census and Statistics Department, more day trippers from the mainland who daily in 2018. Driven by the rental growth at Savills Research & Consultancy are largely budget type shoppers, fueling Harbour City, average shopping centre rents sales of daily necessities, mass market (base rents) in Kowloon rose by 1.5% over cosmetics and skin care products as well Q1/2019. GRAPH 2: Savills Shopping Centre Rental Index, Q1/2008 to Q1/2019 as pharmaceuticals. As a result, local pharmacies and multi-brand cosmetics MARKET OUTLOOK All HKI KLN NT chains continue to expand on the main It is projected that 2019 will be an average 600 streets of core retail districts and remained year for Hong Kong’s retail market, lacking the main demand driver in the leasing the stimulus necessary for robust growth. 500 market over the fi rst quarter. Fortunately, the market fundamentals are Sa Sa has taken space in both Tsim Sha expected to remain relatively stable and 400 Tsui and Mong Kok, leasing the 4,000- will support modest growth in rents in both sq ft space on G/F and 1/F of Star House the prime street shop and shopping centre 300 previously occupied by AX for a monthly segments. rent of HK$2 million and 1,800 sq ft at Q1/2003=100 200 100 TABLE 1: Shopping Centre Rental Changes 0 Q1/2019 (YOY%) 2018 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 08 09 10 11 12 13 14 15 16 17 18 19 Hong Kong Island 0.0% 3.0% Source Savills Research & Consultancy Kowloon +1.5% -0.4% New Territories 0.0% 2.6% GRAPH 3: Savills Prime Street Shop Rental Index, Q1/2008 to Q1/2019 Overall +0.6% 1.6% All Central Causeway Bay Tsimshatsui Mong Kok Source Savills Research & Consultancy 500 450 400 TABLE 2: Prime Street Shop Rental Changes 350 300 Q1/2019 (YOY%) 2018 250 Central 0.0% +3.8% 200 Q1/2003=100 150 Causeway Bay 0.0% +2.4% 100 Tsim Sha Tsui 0.0% 0.0% 50 Mong Kok 0.0% 3.9% 0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Overall 0.0% 2.4% 08 09 10 11 12 13 14 15 16 17 18 19 Source Savills Research & Consultancy Source Savills Research & Consultancy savills.com.hk/research 2 Retail Leasing New market trends PRC SHOPPERS MOVE UPMARKET THE SILVER ECONOMY IS AN AREA OF GROWTH We note that mainland spending preferences continue to evolve towards a The ‘silver population’ represents a rising proportion of the world’s population greater emphasis on quality and originality and away from the mass produced and this cohort is increasingly shaping our local retail economy in various and mainstream. The reasons probably lie in greater sophistication, better respects. A survey conducted by the Consumer Council of Hong Kong access to information and rising disposable incomes among other things. revealed that there are noticeable diff erences between the “soon-to-be-old” There are implications for retailers of course, and tried and tested mass group (aged 55 to 64) and “elderly” group (aged 65 to 79) in Hong Kong in terms fashion brands have already begun to feel the chill. of profi le and expenditure patterns. The “soon-to-be-old” group is generally more educated, has higher personal incomes and spends more than the elderly. SELF-PROMOTION IS KEY The “soon-to-be-old” group is also more tech-savvy, active and socialized and In today’s tough retail environment, in order to get ahead, retailers are feels the appeal of leisure and festival-related activities. relying less on their landlords for promotion and advertising and more on It is important for both retailers and shopping centre landlords to self-promotion. Retailers are fi nding that they must increasingly drive their understand the shift in profi les and hence retail needs of this growing own traffi c via social media using key opinion leaders (KOLs) and infl uencers consumer group to capture the economic opportunities presented by the to draw attention to their brands. Other tools include celebrity endorsements silver economy. Some of apparel brands have already started marketing to this and mini-documentaries on brand values and history or on how products are consumer group by casting senior models in advertisements.