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HONG KONG RETAILMARKET
www.colliers.com/hongkong
RESEARCH & FORECAST REPORT
4Q 2012 | MARKET OVERVIEW
MARKET INDICATORS FORECAST
OVERALL PERFORMANCE
NEW SUPPLY
TENANT DEMAND
INCENTIVES
RENTS
CAPITAL VALUES
YIELDS
Market Sees A Shift In InvestorBuying Patterns
In the investment market, government policy restrictions on the residential sector encouraged
investors to park their money in the commercial sector. The overall number of investment sales of
retail units with a lump sum of HK$10 million or more, increased substantially by 105% QoQ in
4Q 2012. Given the limited buying options in prime shopping locations, investors put their focus on
second and third-tier streets in core shopping areas or looked for investment opportunities in non-
core districts. In anticipation of increasing demand in the sales market and the subsequent price
growth, yields in the four traditional shopping districts will continue to compress in the near term.
Looking ahead, local consumers tend to be more cautious about spending, as they expressed worries
about next years economic outlook and inflation continues to apply pressure on consumer budgets.
Many believe Hong Kong will be hit by declining economic performance in the US and the Europe.
The caution over the economic outlook will scale back local consumption and tourist spending.
The dip in retail sales growth has yet to forced property owners to slim down their asking rents.
A cautious leasing demand environment is expected to slow rental growth. Status as a growth
region is still intact due to the buoyancy of the tourism industry, sustained demand from overseas
retailers, an extreme lack of prime retail space, increasing household income and rising inflation.
These factors are expected to offset the uninspiring global economic conditions. Overall, average
retail rents are expected to grow 9% over the next 12 months.
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HONG KONG | 4Q 2012 | RETAIL
Source: Hong Kong Tourism Board
Source: Census & Statistics Department, HKSAR Government
Improved Spending Sentiment
Thanks to the healthy labour market, local consumer sentiment improved during 4Q 2012. China
saw a revival in growth, which suggests the economy has bottomed-out. The purchasing power
of mainland tourists in Hong Kong continued to drive the citys retail sales. However, the unsteady
external environment could affect the local economy and consumer sentiment down the road.
The limited supply of prime shopping premises, expanding inbound tourism and inflationary pressure
created a positive environment for the retail leasing market. With that in mind, rental rates continued
to grow in 4Q 2012, albeit at a slower pace in view of the unresolved Europe debt crisis and the
still-struggling United States economy.
THE EVER-RISING TOURISM MARKET
The number of inbound tourists continued to soar. According to the latest figures released by the
Hong Kong Tourism Board (HKTB), Hong Kong saw a total of 12.2 million inbound visitors during the
three-month period ending November 2012, increasing by 16.3% YoY. This was mainly underpinned
by 8.9 million mainland Chinese visitors and accounted for 73% of total arrivals.
RETAIL SALES
The growth pace of retail sales accelerated in 4Q 2012. In November 2012, thanks to a stable job
market and a surge in Mainland tourist arrivals. The total value of retail sales increased to 9.5%
YoY, up from 4.6% in August 2012.
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Total Arrivals Arrivals from China (% of total)
ArrivalsfromC
hina(%o
fTotal)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
NumberofArrivals(Million)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
VISITOR ARRIVALS
9.5%
Jan-98
Jul-98
Jan-99
Jul-99
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Retail Sales Vaue (HK$ mn.) % YoY
-30,000
-20,000
-10,000
0
10,000
20,000
30,000
40,000
50,000
RetailSales(HK$Million)
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Growth(%Y
oY)
HONG KONG RETAIL SALES
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HONG KONG | 4Q 2012 | RETAIL
COLLIERS INTERNATIONAL | P. 3
Aug-01
Dec-01
Apr-02
Aug-02
Dec-02
Apr-03
Aug-03
Dec-03
Apr-04
Aug-04
Dec-04
Apr-05
Aug-05
Dec-05
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
7,871
13.7%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
ValueofTotalRetailSales(HK$Million)
Value of Jewellery, Watches andClocks & Valuable Gifts
YoY
-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
ProportiontoTotalRetailSalesVolume(%)
VALUE OF RETAIL SALESSales of Jewellery, Watches and Clocks, & Valuable Gifts
Source: Census & Statistics Department, HKSAR Government
SALES OF HIGH-END PRODUCTS SAW A REBOUND
Spending by mainland visitors in Hong Kong was driven by renewed confidence in their economy.
The sales value of jewellery, watches, clocks and other valuable gifts saw a reboust rebound,
climbing by 13.7% YoY in November 2012. Meanwhile, the sales of medicine and cosmetics recorded
a growth of 13.1% YoY and clothing increased by 8.2% YoY.
The strengthening of the yuan and Hong Kongs lower tax rates are two factors that keep luxury
products, cosmetics and handbags popular. Hong Kong will still attract mainland shoppers, especially
those from second- and third-tier Chinese cities where luxury retailers are not well-established.
CAUTIOUS EXPANSION AMID GLOBAL UNCERTAINTY
Considering the uncertainties over the global economy, international retailers continued their
expansion plans, albeit with a more cautious approach. New overseas brands still actively looked
for prime locations in Hong Kong to set up their flagship stores before continuing with expansion
into China or the greater Asia region.
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HONG KONG | 4Q 2012 | RETAIL
Source: Colliers* Street level shops on key street segments(Nov-2011 = 100)
RETAIL RENTAL INDEX BY MAJOR DISTRICTS (*)
DISTRICT Q Q Q Q Q Q Q Q Q Q
(% QoQ)
Causeway Bay .%
Central .%
Mong Kok .%
Tsim Sha Tsui .%
Overall .%
Rental Trends
RENTAL GROWTH REMAINED INTACT
Property owners were less aggressive in their rental demands, as the slower retail sales growth
throughout 2012 curtailed retailers business profits and hindered their ability to pay soaringrents. However, the extreme lack of prime shopping space for lease and sustained demand from
international retailers continued to support retail rental growth.
During 4Q 2012, Hugo Boss committed to lease 24,000 sq ft of space in Central Building for a
monthly rent of about HK$6 million. The flagship store covers 4,000 sq ft on G/F and 20,000 sq
ft in basement, with a unit rent of about HK$250 per sq ft per month. According to our research,
the average retail rental rates in the four traditional shopping locations rose 1.4% QoQ in 4Q 2012,
following a growth of 2.3% QoQ in 3Q 2012.
Strong demand for first-tier streets in core shopping areas continued to spill over to second-tier
streets, populated by local retailers that were forced to move out of core locations during the last
rental rally. This pushed rents up on neighbouring streets. Furthemore, second-tier streets, such
as Causeway Bay, witnessed stronger rental growth that outpaced growth in first-tier streets.
Investment Market ActivityTHE MARKET SAW A SHIFT IN INVESTOR BUYING PATTERNS
Government policy restrictions on the residential sector had encouraged investors to park their
money in the commercial sector. The overall number of investment sales of retail units with a
lump sum of HK$10 million or above increased substantially by 105% QoQ in 4Q 2012.
Given the limited buying options in prime shopping locations, investors focused on second and
third-tier streets in core shopping areas or looked for investment opportunities in non-core districts
such as Tsuen Wan.
RETURN OF SHORT-TERM TRADERS
Between June and November 2012, the number of retail properties sub-sold before their original
sales transactions were completed (i.e. confirmor sales) surged 67% YoY from that of the same
period in 2011. A batch of retail shops was sold by confirmor during 4Q 2012. After acquiring the
retail podium at Park Hotel in Tsim Sha Tsui for HK$2,200 million in October 2012, the premises
recorded confirmor sales in some of the ground floor shops, fetching a total of about HK$1,764
million in 4Q 2012.
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HONG KONG | 4Q 2012 | RETAIL
COLLIERS INTERNATIONAL | P. 5
Jan-01
May-01
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May-12
Sep-12
Long Term Average:2,122 m
0
5,000
10,000
15,000
20,000
TotalValue(HK$million)
25,000
RETAIL SALES TRANSACTION ABOVE HK$10 MILLION
Source: Colliers
YIELD COMPRESSION
The further-compressed retail investment yield suggested that prices are growing at a faster rate
than rents. The overall retail investment yield edged down 20 basis points from 2.6% in July to
2.4% in October 2012, according to the latest figures by the Rating and Valuation Department.
Meanwhile, the average yield of prime retail premises in traditional shopping locations remained
low at 2.0%. In anticipation of increasing demand in the sales market and the subsequent price
growth, yields in the four traditional shopping districts wil l continue to compress in the near term.
Source: Rating and Valuation Department
Jan-03
Apr-03
Jul-03
Oct-03
Jan-04
Apr-04
Jul-04
Oct-04
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
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Oct-09
Jan-10
Apr-10
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Oct-10
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Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
RETAIL YIELD
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COLLIERS INTERNATIONAL (HONG KONG)
LIMITED
Suite 5701 Central Plaza18 Harbour Road WanchaiHong Kong
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Simon Lo
Executive Director | Research & Advisory | Asia
TEL +852 2822 0511
FAX +852 2868 5275Email [email protected]
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$1.8 billion in annual revenue in 2011
1,250 million square feet under management
Over 12,300 professionals
Copyright 2013 Colliers International.
The information contained herein has been obtained from
sources deemed reliable. While every reasonable effort hasbeen made to ensure its accuracy, we cannot guarantee it.
No responsibility is assumed for any inaccuracies. Readers
are encouraged to consult th eir professional advisors prior
to acting on any of t he material contained in this report.
HONG KONG | 4Q 2012 | RETAIL
Richard Kirke
Managing Director | Hong Kong
TEL +852 2822 0699
FAX +852 2107 6047Email [email protected] Licence: E-279867
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Forecast
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HONG KONG RETAIL RENTAL INDEX
Source: Colliers
Market OutlookLocal consumers tend to be more cautious about spending, as they expressed worries about next
years economic outlook and inflation continues to apply pressure on consumer budgets. Many
believe Hong Kong will be hit by declining economic performance in the US and the Europe.
The caution over the economic outlook will scale back local consumption and tourist spending.
The dip in retail sales growth has yet to force property owners to slim down their asking rents.
A cautious leasing demand environment is expected to slow rental growth. Status as a growth
region is still intact due to the buoyancy of the tourism industry, sustained demand from overseas
retailers, an extreme lack of prime retail space, increasing household income and rising inflation.
These factors are expected to offset the uninspiring global economic conditions. Overall, average
retail rents are expected to grow 9% over the next 12 months.