Prominent real estate advisor Savills saw both prime street shop and shopping centre rents remained flat during 2018 and rental growth had all but ground to a halt by Q4/2018 due to a weak sales performance. We forecast retail rents will rise modestly by less than 5% this year but note that 2019 has already got off to a positive start and risks are to the upside.
The new cross-border bridge and rail link led to a 40.3% surge YoY of same-day mainland visitor arrivals in November to total three million, and total numbers of mainland tourists actually rose over the first 11 months of 2018 by 14% YoY. Increasing same day visitors and a weak Renminbi meant lower per capita spending and unchanged retail rents by yearend. In particular, retail sales growth decelerated to only 1.4% YoY in November, the slowest growth rate registered since June 2017; yet most retailers reported a better-than expected performance over the Christmas holiday period.
Thanks to the strong tourist demand, cosmetics and personal care products retailers are expanding rapidly in popular tourist districts such as Causeway Bay, Tsim Sha Tsui and Mong Kok; F&B stores benefited, too. On the contrary, Q4 saw zero growth over the previous quarter in prime street shop in most districts, except Tsim Sha Tsui (-0.9% QoQ). Whilst shopping malls in Kowloon were largely responsible for the marginal decrease with a -0.3% change over the Q3/2018, on Hong Kong Island and New Territories remained unchanged in mall rents.
As a total of 2.3 million sq ft of new supply will come on stream in 2019, the highest level since 2006, the market fundamentals are expected to remain relatively stable.
Mr. Nick Bradstreet, Managing Director, Head of Leasing said: “Landlords and retailers are wary given current uncertainties surrounding trade, stock market valuations, a weak Renminbi and rising interest rates among other factors. But early indications are that the year has got off to a positive start.”
Mr. Simon Smith, Senior Director, Research & Consultancy said: “The well-observed shift towards higher same day mainland visitor numbers and lower per capita spending continued in 2018 and we believe that 2019 can expect more of the same.”