US realty consultancy firm JLL found that 62 percent of overseas and local retailers it recently surveyed have plans to open new stores in Hong Kong next year, although the days when commercial landlords would just sit back and let tenants fall over each other for the limited supply of retail space have long gone.
Retailers predict a rise in retail rents in core shopping precincts such as Central, Causeway Bay and Tsim Sha Tsui after rates have plummeted more than 40 percent from the market peak in 2014, the survey showed.
Half of the 50 retailers surveyed last month believe Hong Kong’s retail market would bottom out and recover next year, meaning commercial rentals have been nearing the end of the downward adjustment and thus those looking to set up stores must hurry.
Though all respondents believe high-street rentals are somehow overvalued, 62 percent of them have expansion plans. There is an equal balance between retailers who prefer to open a new store in shopping malls and street-level shops.
“Hong Kong’s retail market is still challenging but the mood among retailers has changed from pessimistic last year to believing the worst is over and there are now opportunities,” said James Assersohn, director of Asia Pacific retail at JLL.
The city’s prominence in the global map of retail and luxury goods has not been diminished amid a very strong domestic consumer market and its exposure to the mainland Chinese market.
Statistics from the Hong Kong Tourism Board offer more reasons for optimism: total tourist arrivals in the first five months this year rebounded 3.2 percent year on year to 23.6 million. Moreover, visits by overnight tourists – who spend double on shopping than what same-day tourists spend – rose 5.7 percent to 11 million.
“Tourist numbers are bouncing back. Hong Kong’s rentals have come down and still need a small amount of correction to create an equilibrium. However, business is booming for many retailers and the reduced rentals have left a great opportunity to get prime retail space,” Assersohn said.
“Retailers are seeing this as a great time to take advantage of the market conditions and acquire more space,” he added.
Another good news for both retailers and landlords is that Hong Kong remains a laggard in online shopping. Twenty-two percent of retailers surveyed believe consumers still prefer brick and mortar shops, though almost all key retailers and chains have been operating online platforms for sales and promotion for years.
“Hongkongers believe it’s still more convenient and more enjoyable to just pop into a mall,” Assersohn said.
Malls are transforming themselves into community hubs by offering more entertainment such as improved cinemas or increased variety and quality of restaurants, things that online vendors cannot match.
Terence Chan, head of retail at JLL in Hong Kong, said: “Landlords are now willing to offer flexible leasing terms to the retailers if the image of the brand is good. The rental correction has created opportunities for more retailers to enter the market, and for landlords to diversify their tenant mix. It has also helped many retailers to open crossover stores to create a new shopping experience.”
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