The prime shopping hubs of Causeway Bay and Tsim Sha Tsui, among the most expensive in Hong Kong in terms of rental costs, remain attractive for retailers amid overall sluggishness in the sector.
Retail rents in Causeway Bay fell 8 per cent in the rental index in the third quarter and 10 per cent in Tsim Sha Tsui, and they are expected to decline further next year, according to a Colliers International report.
These declines came amid a 19-month drop in retail spending in the city, with overall sales dropping 9.6 per cent year on year in the first nine months of the year.
Spending in Hong Kong has been depressed by an 8.7 per cent fall in mainland tourist arrivals during the period.
The retail industry in the city as a whole is undergoing a consolidation as tourist traffic from the mainland continues to thin, pushing down shop rents in the near term, according to David Ji, the head of research for greater China at Knight Frank.
In Hong Kong, the four major retail districts of Causeway Bay, Central, Tsim Sha Tsui and Mong Kok had all seen rental corrections, said Terence Chan, the head of Hong Kong retail at JLL.
While Mong Kok has experienced less pressure from the flight of luxury brands, the property consultancy sees a 15 per cent correction for retail rents in the city as a whole this year.
The decline was likely to bottom out next year with a correction of about 5 to 10 per cent, Chan added.
He said that among the four major shopping districts, Tsim Sha Tsui would command the highest average rents in terms of gross floor area, at HK$2,000 per square foot per month. It was followed by Central, with an average monthly rent of HK$1,400 per square foot.
Causeway Bay ranked third with an average of HK$1,200 per square foot.
Chan said that while overseas brands would continue to focus on these four districts, established ones might seek to diversify their footprint with outlets in secondary areas such as Yuen Long.
According to Ji, retailers will continue to favour Causeway Bay and Tsim Sha Tsui, but the trend of high-end luxury brands being replaced by sports, lifestyle and food and beverage outlets will continue.
With Adidas leasing the space formerly occupied by a Coach store in Central and footwear outlet Joy & Mario replacing jewellery store Folli Follie in Causeway Bay, rents will inevitably continue to come under downward pressure.
“We are now facing a ‘new normal’ trend,” Ji said. “It’s safe to say we are not going to see a drastic improvement. If retailers can hold their ground for the better part of next year, then it’s already a good situation.”