MarketView Hong Kong Retail

HK$33.8 billion. Prime retail rental value. HK$584 psf. Hot Topics. • Tourist-driven activities continue to support leasing demand in the Hong. Kong retail market.
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CBRE

MarketView Hong Kong Retail www.cbre.com/research

First Quarter 2012

Quick Stats

OVERVIEW

Unemployment rate* 3.4% Median household income

HK$ 20,800

Inflation rate

4.7%

Visitor arrivals

3.37 million

Retail sales value

HK$33.8 billion

Prime retail rental value

HK$584 psf

*Mar 2012, 3 month average figure

Hot Topics • Tourist-driven activities continue to support leasing demand in the Hong Kong retail market • Prime rents are likely to continue their upward trend amid tight supply and strong demand, albeit at a slower rate • Landlords are actively reshuffling tenants to make way for high-end brands

• Leasing demand underpinned by tourist-driven activities Encouraged by the continued strong spending from mainland visitors, retailers with tourist-driven activities continue to seek a greater presence in key shopping districts. The most competitive retailers in securing space come from the cosmetics, luxury brands and jewelry sectors. sectors • Slower rental growth Landlords are generally holding firm with high asking rents given the tight supply of prime retail space. Average prime high street retail rents continued to trend upwards in Q1, but at a slower rate to that recorded through 2011. While rents in all sub-markets registered an increase, Causeway Bay recorded the highest rental growth, thanks to the ongoing expansion demand from cosmetics vendors and watch retailers. • Revised tenant-mix to cater for more luxury brands Recognizing the potential high rental value of prime high street retail space, landlords are actively reshuffling their tenant-mix to cater for more high-end luxury brands. Retail space, particularly with eye-catching shop fronts in prime locations, are heavily sought after by luxury retailers. As such, landlords are responding actively by relocating the non-luxury retail tenants from ground or lower floors to higher stacks. • Outlook The sustained demand from international brands for prime retail space is likely to continue to support prime retail rents over upcoming months. We expect to see prime retail rents to continue their upward trend, albeit at a softer pace of growth compared to 2011. There are signs that some mid-range retailers are unwilling to pay high rents, and despite strong demand from luxury retailers, this could impact further on rental growth prospects going forward.

Total Retail Sales in Hong Kong 60

40% Total Retail Sales (3 Month Average) Retail sales 3 Month Average Year-on-Year Year Change (%)

50

30%

40

20%

30

10%

20

0%

10

-10%

0

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

-20%

Source: Census & Statistics Department

© 2011, © 2012 CB Richard CBRE HKEllis, Limited Inc.

Year-on-Year Change

Trend

HK$ Billion

Latest data (Feb)

Retail sales values climbed 16% y-o-y to reach HK$33.8 billion during Feb 2012. Jewellery, watches and valuable gifts accounted for just over a fifth of all sales. Strong retail sales of luxury and big-ticket items was reflected in ongoing solid demand for prime space in the core shopping districts. For instance, Prince Watch expanded its existing Peking Road outlet from 2,000 sf to a 3-storey flagship store with over 13,000 sf. It also increased its exposure by leasing another ground-floor shop at Haiphong Road in Tsim Sha Tsui. Meanwhile, Chow Tai Fook, a local jewellery chain, also leased the ground floor in Lockhart Road to expand its retail network. International retailers were also active in leasing retail space. In