Although we are not out of the woods yet, some signs of improvement have been noted in the first quarter as rates of rental decline have slowed and retail sales have picked up.
- Despite the impact of the fourth wave of infections and an absence of international visitors, Hong Kong’s retail sales turned around in the first two months of 2021 with total sales value up by 2.7% YoY.
- Rates of rental decline are slowing in both the prime street shop and major shopping centre segments.
- The leasing market showed early signs of revival in the first quarter while consumer sentiment and business confidence have been gradually improving.
- Given a more local-centric market environment, shopping centre landlords are increasing their leisure offerings for families, and a number of international entertainment operators/concepts have made their debut in the Hong Kong market.
- The rollout of a vaccination programme, the relaxation of social distancing and the reopening of borders will all help to fuel a recovery in the tourism and retail markets in the near term.
Hong Kong – 8 Apr 2021More than a year into the COVID-19 pandemic, both local consumers and local businesses seem to be adapting to pandemic-disrupted life and a "new normal" has settled on the retail market. Local consumption has emerged relatively unscathed from 2020, and domestic spending is estimated to have grown by 3.2% YoY last year to hit nearly HK$320 billion, a 15-year high for domestic consumption.
Despite the impact of the fourth wave of infections which has lingered since November and an absence of international visitors, overall retail sales turned around in the first two months of 2021 rising by 2.7% when taking the figures for January and February together (eliminating the impact of the timing of Chinese New Year). Sales of electrical goods performed best growing by over 34% YoY, followed by sales of fresh food items and furniture and fixtures, possibly driven by WFH/dining at home demand. It is a surprise to see that the supermarket segment has reversed its growth trend of previous quarters to fall by 8.6%. This may be attributable to a decline in sales of festive gifting items over Chinese New Year as a result of the muted New Year celebrations.
In the meanwhile, prime street shop rents have contracted by another 4.9% QoQ in Q1/2021 following a 23.4% YoY decline in 2020 (street shop rents are now down a staggering 76% from peak levels in 2013/14). Base rents in major shopping centres have also fallen by 4.8% QoQ over the first quarter representing a 46% decline from peak.
Led by F&B, lifestyle brands and necessity-focused retailers, the leasing market showed early signs of revival in Q1. Some vacant or surrender space in core locations has been slowly absorbed over recent months, as local retailers are also taking advantage of the lower rent environment to look for opportunities to increase store presence, plus a number of international entertainment operators/concepts have also made their debut in the Hong Kong market recently.
Given a more local-centric market environment, shopping centre landlords are also increasing their leisure offerings for "family", including family with kids and family with pets to woo local consumers, and concepts include an interactive/digital entertainment zone, a free kids STEAM centre (with elements of Science, Technology, Engineering, Arts, and Mathematics), a kids playground/bike park, and a pets park.
Market outlook
The pandemic has transformed many aspects of people’s lives and there have been dramatic shifts in how we live, work, play as well as how we shop. The work from home trend, for one, has shown to have a greater negative impact on the hospitality industry than retail. The electronic and technology sectors will benefit, at least in the short- to medium-term, due to the increase in demand for work-from-home equipment, home-office furnishings and may be home entertainment equipment. Neighbourhood retail also stands to win from the WFH trend while city centre shops catering to worker catchments can expect to see some drop off in traffic.
The decimation of international travel, the need for "social distancing" and the growth in health consciousness led to huge interest towards outdoor activities such as hiking, cycling, camping and glamping. If this enthusiasm is not just a craze, we can expect sustainable growth in related retail sectors in the future.
Mr. Simon Smith, Regional Head of Research & Consultancy, Asia Pacific of Savills commented: “As the worst looks like it is behind the retail market questions surround the rate of turnaround and what changes will prove permanent.”
Mr. Nick Bradstreet, Managing Director, Head of Leasing of Savills said: "Landlords of both prime street shops and shopping malls are taking slightly different approaches to filling empty units. On the street, landlords are using pop-ups and short-term tenancies to keep hold of income streams, while shopping centre landlords are looking for new concepts and crowd-pulling retailers in a bid to diversify their trade and tenant mix and increase foot traffic."
Mr. Barrie Chan, Senior Director, Retail Leasing of Savills said: “While consumer sentiment and business confidence have been gradually improving in Q1, the rollout of a vaccination programme, the relaxation of social distancing and the reopening of borders will all inevitably help to fuel a recovery in the tourism and retail markets in the near term.”