Home > Blog > Colliers: Has the retail market bottomed out yet?

Cynthia Ng, Director of Retail Services at Colliers International Hong Kong shares the latest Leaders' Insight for the retail sector.

 

Has the Retail Market Bottomed out yet? - I get asked this question in my job frequently in the first half of 2017.  I’d say the confidence and momentum have finally picked up from a very fragile point.  There is a pattern of recent transactions and unremitting appetite for shops within a size range of 800 to 2,000 sq ft instead of a strong desire towards big flagships over 20,000 sq ft.  The lump sum rental (more so the rental per sq ft) plays a pivotal factor for brands to press that green light over a shop taking decision. 

It’s been quite a hard-hitting lesson for retail landlords to witness the transformation of the retail market over the past three years.  High street landlords are no longer sceptical about the long vacancies and short tenures hence they are realistically reducing rental by half or more than half from the market’s peak to renew or sign up with reputable and stable tenants. International retailers, more we could see those who sell premium confectionery, designer lingerie collection and lifestyle goods with a key focus on millennials and female consumers are leveraging the adjusted rental on first tier street locations to expand. They can decide swiftly for shops with a monthly rental under HKD800,000 that come with a good shopfront.

So which industry is driving the benefactors for portfolio mall landlords to boost shoppers traffic and sales spending?  Contemporary Food and Beverage concepts with award-winning chefs continue to emerge with premium coffee and confectionery brands. When these offerings come in a decorative thematic fit out and through an exhibition of promotion, consumers love to check in and share on social media which also plays an enormously powerful marketing tool for the malls. Having grown up as a coffee guru myself who’s spoilt with the finest coffee in Australia, I am excited to see more and more quality coffee offerings spreading in Hong Kong either partnering with a retail brand to create a crossover concept store or entering the market to launch its first standalone café with a coffee academy feature.

Fresh skincare brands relatively new to Hong Kong like to engage with celebrities who carry a fresh and healthy look to become their brand ambassador. It has been increasingly widespread to gratify consumers and to complement further growth in the volume of sales for skincare and cosmetic labels. When it comes to fashion, leading designers’ seasonal collection at discounted price points are what the consumers are seeking for and appreciating nowadays.   

Upcoming mall developments are implementing the above when sourcing target tenants. The extension of Ocean Terminal with OP granted in Q2 2017 is housing Food and Beverage from renowned international European concepts and creative Asian cuisines.  Retail portion of Lee Garden Three in Causeway Bay will primarily target affluent millennials and committing to premium lifestyle, tech savvy trades as well as inventive F&B which will dominate a generous portion of the retail percentage.  The project is expected to be complete and open by Q1 2018. Operational grade A malls are also undergoing a facelift on their present tenant mix without interrupting the significant positioning and overall theme of the mall.  

Tourism has witnessed a double digit growth YOY in H1 2017 and retail sales have slightly improved by a single digit percentage. I don’t see a real bottom out on the rental as yet due to the large vacancies and the haze created in the retail market over the last 3 years.  However, I do expect rental concessions will become thinner in H2 2017 with confidence steadily picking up and may lead to a plausible rental increase in 2018. The number of local shoppers and consumers sales will continue to edge upward and remain as the respectable loyalty focus group for brands growing in Hong Kong.   

 

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