Prime retail rent in Hong Kong predicted to jump 7.5%

Landlords to become more accommodating.

According to Macquarie Research, it forecasts Hong Kong overall prime retail rents to increase 7.5% YoY in CY13E, 4.5% in CY14E and 3.0% in CY15E. 

"We continue to favour Wharf as our top-pick among the Hong Kong retail landlords. We believe Wharf has the greatest leverage to the Mainland Chinese tourism discretionary spending positive thematic," says Macquarie.

Here's more from Macquarie:

We reduce our CY13-CY15E Hong Kong retail rent forecasts to reflect the slowing Hong Kong retail sales growth and to anticipate further moderation in retail sales growth.

We expect Hong Kong retail landlords to become more accommodating in terms of rental reversions.

However, the Hong Kong retail market lead indicators remain resilient. On a 12-month rolling basis, retail sales were solid and up +11.4%, while the HSI is up ~13% YoY.

The unemployment rate is now just 3.3%. Hong Kong residential prices are still up by ~3.5% CYTD. China Mainland visitor arrivals growth remained solid in July 2013 at +15.7%.

The supply side is attractive, with Hong Kong prime retail vacancies at just 2.45%. Furthermore, new supply in Hong Kong prime retail equates to 1.5% of existing stock over the next three years.