Retailers looking to emerging districts like Shatin and Tuen Mun to cash in on rising day-trip tourism
Despite robust retail sales growth in January and February, retailers remain cost-sensitive in the face of high rentals and as a result, overall retail rents in Hong Kong are expected to grow at a more moderate pace of about 5% for 2013, according to Jones Lang LaSalle’s latest Hong Kong Retail Market Report.
After a volatile 2012 which saw growth slow to 9.8%, a noticeable drop from the record 24.9% growth in 2011, retail sales grew by a resilient 15.8% y-o-y in January – February 2013. The strong performance was supported by robust local consumption and the Chinese New Year holiday, which saw tourist arrivals up 13.5% y-o-y in 1Q13 with the number of tourists from mainland China rising by 20.3% y-o-y. It is projected that the inbound tourism sector will grow 7% in 2013, attracting 52 million tourists into Hong Kong by year end.
One notable fact in the growing tourism sector is that more and more visitors are opting for a “day-trip” visit to new and emerging shopping districts including Sheung Shui, Yuen Long, Tuen Mun and Shatin. According to the report, the number of day trip tourists from mainland China or “day trippers” grew by 37% to 20 million in 2012. With average spending between HK$2,000 and HK$6,000 per trip, these day trippers have already caught the eye of global and established local brands, resulting in higher sales and growing demand to locate stores in these new shopping districts.
Sectors
Whilst cosmetic retailers are amongst the most active in IQ13 with strong sales and high activity levels they too are exposed to increasing rentals and are seeking secondary locations. The major local cosmetic companies are a good indicator as to where emerging districts are likely to be as they generally are the first to move in. Watch brands however, have moderate sales growth though they have higher activity levels than other sectors but are able to afford the higher rentals, often driving rentals up in premium sites whether using their own branded shops or through their distributors/agents forcing existing tenants out.
Ladies lingerie is also seeing very strong sales growth with moderate activity, though still susceptible to rental affordability but these companies are less dependent on being situated in the prime locations in the malls or high street. For example, American lingerie brand Victoria’s Secret will be opening one of its two new shops at New Town Plaza in Shatin in 2013. With only about 5 million sq. ft. of retail space in the pipeline between 2013 and 2016, retailers will likely continue to look into the new and emerging districts for growth opportunities.
The biggest victim of increasing rentals is the food and beverage (F&B) industry. A vast choice of venues for visitors to choose from and increasing food and labour charges means that F&B outlets are moving from prime locations as rents soar above tolerable operating equations. Those that survive tend to relocate within the neighbourhood to keep local patronage rather than emerging locations which are the preserve of the larger F&B restaurant operators who can leverage their rental costs across many outlets.
Emerging areas and districts
As rental increases squeeze margins retailers are looking to what were previously secondary streets in existing high impact shopping areas on Hong Kong Island and also pursuing the secondary shopping centres in greater Kowloon and the New Territories. Day trippers are increasingly likely to venture beyond the highly crowded shopping districts to locations that offer more brand choice, affordability and in a lot of cases convenient access to the Chinese border.
For example, a new retail development that is due to open in 2Q13 is V City (269,000 sq ft), a new shopping centre in Tuen Mun. The shopping centre is projected to draw over 100,000 visitors daily, including cross-border day trippers. Renowned global brands are also looking for new opportunities in emerging shopping districts.
Despite this new trend, demand from global brands for retail premises in traditional prime shopping districts remains intact with retailers continuing to show strong interest in areas with high customer traffic. As a result, rents in prime shopping districts continued to edge higher with rents in high street shops and premium prime centers up by 1% and 1.2%, respectively, in 1Q13.
However, the limited availability of retail space and consequently high asking rents in prime shopping districts continue to pose great challenges to cost-sensitive retailers, who in many cases are no longer able or willing to commit to higher rents. The growing reluctance to chase higher rents resulted in rental growth moderating in 1Q13 and prompted an increasing number of retailers to expand and open new stores on fringe streets, where rents are lower. For example, Gough Street in Sheung Wan has been attracting more and more international retailers and high-end restaurants given its proximity to the SOHO precinct. Similarly, Yiu Wa Street in Causeway Bay is also drawing attention from retailers including UGG, which recently opened a flagship store there.
Tom Gaffney, Head of Retail at Jones Lang LaSalle Hong Kong, said, “While there are still market uncertainties ahead, we believe that a vibrant inbound tourism, largely healthy job market, and retailing opportunities in new and emerging shopping districts on the back of rising day trip tourism should continue to lend support to the retail sector for the rest of the year. We remain optimistic about the prospects of the retail industry, especially in certain sectors such as watch, jewellery and fashion that are expected to see a resurgence in sales this year. With demand from retailers remaining relatively strong, we therefore expect the overall average growth of retail rentals to rise at a moderate pace, of about 5% for the whole of 2013.”