Hong Kong retailers keen to get in at the bottom of the market

A recent survey global real estate consultant JLL found that 62% of international and local retailers have plans to open new stores in Hong Kong in 2018. It shows retailers are calling the bottom of the retail market and predicting an improvement since the retail rents in core shopping districts have dropped 41.2% from the market peak in 2014.

JLL surveyed 50 international and local retailers in June and found that half of the respondents think Hong Kong's retail market will recover next year. Although all retailers believe high-street rentals are still over-valued, 62% of them have expansion plans. There is an equal balance between retailers who prefer to open a new store in shopping malls and street-level shops. James Assersohn, Director of Asia Pacific Retail at JLL reports, "Hong Kong's retail market is still challenging but the mood among retailers has changed from pessimistic last year to believing the worst is over and there are now opportunities." He said Hong Kong is immensely important because it is a very strong domestic consumer market and because it offers exposure and access to the Mainland Chinese market. Figures from the Hong Kong Tourism Board show total tourist arrivals in the first five months rebounded 3.2% y-o-y to 23.6 million. More importantly, arrivals from overnight tourists - who spend double on shopping than what same-day tourists spend - rose 5.7% y-o-y to 11 million. "Tourist numbers are bouncing back. Hong Kong's rentals have come down and still need a small amount of correction to create equilibrium. However, business is booming for many retailers and the reduced rentals have left a great opportunity to get prime retail space. As our survey suggests, retailers are seeing this as a great time to take advantage of the market conditions and acquire more space," he added. Online shopping in Hong Kong is less popular than in other cities. But 72% of respondents believe Hong Kong consumers will embrace it in the next 5 years, with 22% of retailers believing they won't. "The experience that online platforms offer is currently rather poor in Hong Kong and so far it is still more convenient and more enjoyable to just pop into a mall," argues Assersohn. "However, this will change. You are starting to see malls future-proof themselves by focusing on creating the mall as a community hub whether that's through more entertainment such as improved cinemas or increased variety and quality of restaurants. For bricks-and-mortar shopping to continue to succeed, the experience you get from a mall needs to be better than what online platforms can offer. So far, it is." Terence Chan, Head of Retail at JLL in Hong Kong said, "Landlords are now willing to offer flexible leasing terms to the retailers if the image of the brand is good. The rental correction has created opportunities for more retailers to enter the market, and for landlords to diversify their tenant mix. It has also helped many retailers to open crossover stores to create a new shopping experience."