MARKETBEAT

RETAIL SNAPSHOT

HONG KONG

Q2 2014

A Cushman & Wakefield Research Publication

ECONOMY
GDP expanded by 2.5% in the first quarter
of 2014, a slightly slower pace than in the
previous quarter. Slow exports growth,
reflective of a still unstable recovery in
advanced economies, continued to drag
down the local economy. Domestic spending has held up, with
private consumption expenditure increasing by 2.0% year-on-year
despite a high base last year. Near full employment continues to
support consumption growth. Retail sales growth moderated
further in the second quarter due to lower tourism growth and
spending. Retail sales declined by 9.9% year-on-year in April, the
largest decline in more than five years. The drop is also attributed a
high base last year where the market saw robust gold and jewelry
sales. In April and May, the number of tourist arrivals increased by
10.9% and 10.8%, respectively.

RETAIL MARKET OVERVIEW

There is some degree of angst in the retail market after recently
slow retail sales performance and also floating ideas on curbing the
number of Mainland visitors due to public discontent and strains on
infrastructure. These factors, along with still near-peak level rents,
contributed to slower brand and retailer expansion in the second
quarter. The drop in tourist arrivals from the Mainland during the
Labor Day holiday and Tuen Ng Festival led to lower sales of
watches and jewelry and also daily necessities including beauty and
cosmetic products. Shops selling these goods are mainstays in the
citys prime shopping areas after undergoing heavy expansion over
the past several years. Moderating performance has already caused
one of the markets leading watch and jewelry retailers to
announce they will add just several stores this year. Sa Sa, a leading
local cosmetics retailer, reported an approximate 1% drop in sales
during the Labor Day holiday attributed to the decline in Mainland
tourist arrivals during the same period. First half 2014 sales growth
dropped to 5.4%, with same-store sales growth declining to 1.5%.
On a more positive note, several brands expanded their footprint.
Esprit leased two prominent street shops, including a multi-floor
space on Queens Road Central, while Danish jewelry brand
Pandora will relocate to a larger shop on the same street. Topshop,
which opened its first store last year, has leased space in Times
Square and will open in the third quarter. Zara also recently
opened its flagship on Queens Road Central, after taking over the
space from H&M at a rent of HK$11 million per month.
The market is beginning to see slightly lower rental increases on
renewals and new lettings in recent months. During the first half of
2014, average rental increment on renewals and new leases stood
at roughly 40%, significantly lower than in the first half of 2013.

9/F, St. Georges Building

2 Ice House Street
Central, Hong Kong
www.cushmanwakefield.com/knowledge

For more information, contact:

Michele Woo
Executive Director, Retail
(852) 2956 7073
michele.woo@ap.cushwake.com

More shops have remained vacant for an extended period of time

due to still aggressive asking rents and slower demand. Prime street
shop rents remained relatively stable in the second quarter, having
adjusted by -1% quarter-on-quarter.

OUTLOOK
The retail market continues to transition toward a more
sustainable growth phase, one that is reliant on a greater balance of
both local consumer and tourist spending. The recent sales
slowdown is indicative that this trend is spreading across the wider
market with local cosmetic chains and jewelry retailers who upuntil-recently were undergoing aggressive expansion now adopting
much more conservative approaches. International brands will also
continue to monitor the market after the recent spate of lower
sales and arrivals. Nonetheless, the outlook for the retail sector
remains positive with tourism still a significant growth catalyst.
Prime street shop rents will adjust slightly given lower expectations
by tenants amid more cautious sentiment. Secondary street shops
will experience a slightly sharper correction due to higher vacancy
and less robust demand.
ECONOMIC INDICATORS
2012

2013

2014F

GDP Growth

1.5%

2.9%

2.8%

CPI Growth

4.1%

4.3%

3.7%

Unemployment Rate

3.2%

3.2%

3.2%

Private Consumption Growth

3.0%

4.2%

3.7%

HONG KONG

SOURCE: Census and Statistics Department, Roubini Global Economics

PRIME RETAIL RENTS JUNE 2014

MAIN STREETS

HK$

EURO

US$

Q-O-Q

Y-O-Y

SF/MTH

SF/YR

SF/YR

CHANGE

CHANGE

Central

1,420

1,617

2,198

-1.0%

-4.1%

Causeway Bay

1,800

2,050

2,787

-1.6%

-7.7%

Tsim Sha Tsui

1,350

1,537

2,090

-0.7%

2.3%

Mongkok

1,000

1,139

1,548

-1.0%

0.0%

Note: 1.00 USD = 7.751 HK$ / 1.00 EUR = 10.537 HK$

SIGNIFICANT C&W LEASING TRANSACTIONS

PROPERTY

LOCATION

TENANT

Trend Plaza

Tuen Mun

Laneige

SQUARE FEET
1,400

East Point City

Tseung Kwan O

Deluxe Cuisine

9,220

The market terms and definitions in this report are based on NAIOP standards. No warranty or
representation, express or implied, is made to the accuracy or completeness of the information
contained herein, and same is submitted subject to errors, omissions, change of price, rental or other
conditions, withdrawal without notice, and to any special listing conditions imposed by our principals.
2014 Cushman & Wakefield, Inc. All rights reserved.