Hong Kong remains as the world’s most expensive global retail market, fueled by wealthy Chinese tourists, luxury retailer expansion and a shortage of prime space, according to new research conducted by global property advisor CBRE Group.
CBRE’s quarterly survey, which tracks the top 10 most expensive prime global retail markets, continued to find historically low construction rates of prime retail space globally, leading to low availability levels and fierce competition.
"This dynamic is driving record rents across many global retail markets, including those ranking among the most expensive, such as Hong Kong, London, Paris and Sydney," the study noted.
In the fourth quarter of 2012, prime rents in Hong Kong remained steady at HKD4,335 (USD558.9) per square foot per annum to defy a deceleration in retail sales due to current global economic uncertainty. Demand has remained relatively muted as many retailers have grown less aggressive with their expansion or entry plans given the market’s lofty rent levels.
Thus, retailers throughout Hong Kong have generally become more selective in their requirements. Prime units are still in high demand, while off-prime or secondary units attract less interest.
“Elevated prime retail rents in Hong Kong are not only caused by the influx of tourists and luxury brands, but also the serious lack of prime retail space in core retail districts, said Joe Lin, Senior Director Retail, Hong Kong, CBRE. "There are very few new malls in the pipeline and so international brands are competing for limited shop space."
However, with relatively promising economic expectations for 2013, luxury brands are seen to continue to see Hong Kong as a profitable opportunity, but when the rents become prohibitive, retailers act carefully, Lin observed.
“The flipside to this is that local retailers, who are not primarily targeted at tourists, cannot afford the increasing rents and in some cases are forced to relocate, which is resulting in less choice in prime districts. With the prime areas packed with Chinese tourists, local residents are also beginning to shift to the outskirts of the city for their shopping," Lin added.
Towards the end of last year, CBRE noted that Chinese tourist spending has started to slow and rents are not anticipated to rise dramatically in 2013 given their already high levels.
Overall, CBRE’s prime retail rankings saw little change during Q4 2012. Prime rents have stabilised at historically elevated levels due to a scarcity of, and preference for, prime space in locations with the greatest degree of visibility.
Ray Torto, Global Chief Economist, CBRE, explained that in the near term, prime rental growth would stabilise in Hong Kong, Melbourne and Sydney, and even strengthen slightly in Tokyo, Paris, London and Beijing.
"Economic headwinds, such as pervasive consumer deleveraging, lacklustre employment growth in the US, and sovereign debt and policy response uncertainties in both the US and Europe, have resulted in low construction rates across most markets, exacerbating space shortages and keeping or driving prime rents higher,” he said.
The supply of prime space was tight elsewhere throughout the Asia-Pacific region, which helped maintain rent levels in Sydney, Melbourne, Beijing and Tokyo. In Sydney, demand from international retailers (especially from the US) is high with many new will brands set to enter the market in 2013.