In a broadly stable market with generally weak sentiment, retailers remained largely restrained in terms of expansion given uncertainties over the date of border reopening and the return of tourists. Leasing market activity was particularly sluggish in the prime street shop segment, except for Central, while F&B has again been a rare bright spot, according to Savills in its Market in Minutes - Hong Kong Retail Leasing report for Q3 2021.
- Rents in both the prime street shop and major shopping centre segments have stabilised and registered a QoQ growth rate of 0.4% and 1.2% respectively, compared with 0.3% and 1.2% respectively in Q2
- The market has been relatively stable over Q3 with retail sentiment weak, while F&B has remained a rare bright spot
- Dining-out or 'eat-cations' have become the 'new holiday' for locals, supporting the F&B sector across all price points
- Leasing activity in core locations remains largely subdued except Central which continues to benefit from its reliance on high-end local demand.
Central in contrast to previously tourism-heavy retail areas
Central is showing marginally more activity than other core locations, benefiting from its reliance on high-end local demand and the fact that office workers have largely returned to their desks and are spending again. Recent transactions were from various trades, including Samsung in China Building, Petit Bazaar in Lansing House, Lululemon in H Queen's, and the restaurant group JIA Group at 1 Duddell Street.
Meanwhile, districts previously dependent on tourists remain no-go areas for retailers. Tsim Sha Tsui, Mong Kok and Causeway Bay will continue to suffer until borders reopen, and the old 'golden mile' from 1881 Heritage to China Hong Kong City is still seeing a lot of availability. Luxury brands are still wary of stepping outside established malls and onto the high street. In fact, some of the luxury fashion brands have rationalised their networks by downsizing flagship store scale and/or reducing store numbers due to the challenging business environment over the past two years.
Retail sales boosted by Consumption Voucher Scheme
Thanks to the government's Consumption Voucher Scheme (CVS), the domestic market continued to improve in August with retail sales recording a YoY double-digit growth rate of 11.9%. The apparel-related sector witnessed the strongest rebound of over 40%. The second instalment of the CVS disbursed recently will further boost local consumption and benefit the suburban retail market. Apart from apparel, F&B is still strong across all price points, from fine dining to casual restaurants. The fine dining sector has been fuelled by strong demand from local consumers for unique gastronomic experiences and dining-out or 'eat-cations' have become the 'new holiday' for locals during the pandemic era.
New concept stores to test new markets
Rents in both the prime street shop and major shopping centre segments recorded mild increase over Q3 by 0.4% and 1.2% QoQ respectively. Some retailers took advantage of the current low rent environment to test new markets and launch new retail concepts. Notable examples include Ikea's concept store in Discovery Bay which is located inside a supermarket - a world-first for the Nordic retailer. Meanwhile Don Don Donki has also opened its first-ever sushi restaurant, Sen Sen Sushi, in OP Mall in Tsuen Wan West.
Retail market prospects depend on borders reopening and possibly vaccination rate
A clear timetable for the reopening of borders with mainland China would provide a clearer picture of the market outlook into next year. The Hong Kong Government is in close contact with the governments of Guangdong and Macau to broaden the resumption of cross-boundary travel among the three locations, with options including a potential integration of a health code system to facilitate inter-city travel. On the other hand, a high inoculation rate may also help to speed up the restoration of cross-border and international travel, which may benefit retail sales performance to some degree, as shown by the examples of Hong Kong and neighbouring economies such as Singapore, South Korea and Taiwan.
Mr. Simon Smith, Regional Head of Research & Consultancy, Asia Pacific of Savills commented: "Retailers' expansion plans are still firmly on hold while former tourist districts remain no go areas. Most brands continue to value the security of malls and are reluctant to return to the high street."
Mr. Barrie Chan, Senior Director, Retail of Savills said: "In a very mixed market, F&B was again the stand-out sector in the third quarter as dining out became the 'new holiday' and landlords found innovative ways to boost patronage at bars and restaurants including couponing."