High street retail rents slipped 0.1% in Q2

Most new leases were by mid-range retailers in the personal care and sporting goods categories.

As sales of luxury goods continued to remain sluggish in Q2, slipping 2.9% YoY in April and May combined, overall high street shop rents dipped 0.1% QoQ, with rents in Central dropping 0.4% QoQ, a report by CBRE revealed.

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Luxury retailers remained cautious towards expansion, with leasing activity mainly involving brand replacement. LVMH reportedly swapped Chaumet with Hublot at a 3,500-sqft unit in 1881 Heritage on Canton Road in Tsim Sha Tsui, whilst local chain TSL Jewellery took over Geneve Watch Centre’s 2,100-sqft space on Nathan Road.

In Central, Prince Jewellery took over the lease at Oriental Watch’s 19,000-sqft space along Queen’s Road Central. “Some of the vacating tenants will reduce their footprint after returning the premises,” the report’s authors said.

Most new leases signed during the quarter were by mid-range retailers in categories such as personal care and sporting goods. Highlights included European cosmetics chain Sephora leasing half of Zara’s current space in Ife mall in Central, and committing to another 3,400-sqft store at Windsor House in Causeway Bay, marking its re-entry to Hong Kong after almost a decade’s absence.

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Also in Causeway Bay, LUSH took a 1,500-sqft unit formerly occupied by Chow Sang Sang along Great George Street. Other activity in the personal care category included Fanel leasing 2,000 sqft of a 4,500-sqft unit in Entertainment Building in Central, formerly occupied by Mercedes Benz.

“The period also saw several sporting goods retailers commit to relatively large units. These include Fila, which leased a 4,000-sqft shop in Queen’s Road Central formerly occupied by Chow Sang Sang. Elsewhere, Decathlon opened its third store in Hong Kong, and now also the city’s largest sporting goods store, at a 36,000-sqft space in Sheung Tak Plaza in Tseung Kwan O,” the report’s authors highlighted.

With local political disputes expected to remain in place for longer, with mass protests occurring in core shopping districts and around cross-border infrastructure, CBRE forecasts retail sales to further slump. “Uncertainty about the overall outlook of the retail market will ensure retailers refrain from expansion until the situation improves,” the firm noted. “Leasing of retail premises is therefore expected to remain slow in the short term.”

Meanwhile, CBRE forecasts more retailers to consider pop-up stores and short-term leases, rather than traditional long-term commitments, partly driven by a wait-and-see approach taking hold, and because retailers will be seeking to capture the increase in consumption during the festive season.

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The report also highlighted that major new retail supply in the pipeline includes New World Development’s flagship K11 Musea at Victoria Dockside in Tsim Sha Tsui, scheduled to come on stream in Q3 2019.

“The 1.2 million sqft gross floor area (GFA) project will be the largest shopping mall to open in core market since Elements in 2007, and features a wide range of art and cultural attractions to lure footfall,” CBRE added.

Overall, high street rents are forecasted to edge down slightly by within 5% over the remainder of 2019, with retail units located in non-core districts expected to outperform, whilst shopping mall rents are projected to remain flat.