Local operators may be facing a crisis of sorts, but are meeting challenges posed by the shifting landscape. For some commentators, Hong Kong retail is facing its biggest test in a while. The market continues to be characterised by shrinking mainland arrivals, falling rents, and changing demographics. Is it all doom and gloom, or can the sector adjust and come out in good shape?
Savills data suggests that prime street shop rents have almost regressed to levels not seen since before the global financial crisis. Rents will soon reach more sustainable levels, reversing the process of exponential growth from 2009 to 2013, which was driven by capital from Mainland China flooding the local economy.
To compound this issue, a shift has occurred in the profile of mainland tourists, who are increasingly arriving from second and third tier cities. These shoppers are more price sensitive and more likely to be interested in affordable luxury rather than top end jewellery or the higher end fashion brands.
High-street fashion/accessory brands and particularly active wear/sports retailers are beginning to take up space previously occupied by watches and jewellery and other Mainland-focused trades. For those streets which have proved unsuccessful during the boom times rents are not only falling but the character of the street is changing more towards food and beverage and local operators. For many this would be considered a good thing.
Looking at the shopping malls, landlords are adjusting their tenant mix. In prime shopping malls, units are beginning to be subdivided. Landlords are seeking freshness and diversity in their retail mix, to appeal to a broader segment of consumers. Savills indicates that there will be a thinning of luxury offerings, to be replaced by more affordable and intriguing retailers that can attract the local market. Outlets on their way in will include new food and beverage offerings together with the likes of gelato and ice cream operators that can work in a smaller space, and yet keep the rent to area ratio attractive for landlords.
(Source: South China Morning Post )