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Savills Research

Hong Kong

Briefing
Retail sector

February 2012

Image: Causeway Bay

SUMMARY
Hong Kong is emerging as the worlds most sought-after retail location.
For new-to-China brands in
particular, their flagship stores in Hong
Kong are designed to build brand
recognition among mainland shoppers
and trial new lines.
The importance of Hong Kong as a
regional retail hub is more apparent in
the aftermath of the financial crisis.
Prime street shops in Central,
Causeway Bay and Tsim Sha Tsui are
the most sought-after locations for the
flagship stores of newcomers.

The connectivity of the southern


part of Causeway Bay has been
improved with redevelopment projects
and face-lifting programmes and is
benefiting the secondary streets in that
part of the district.
Prime shopping centre rents
increased by 2.7% over Q4, while
prime street-shop rents increased by
3.9% over the same period.

Prime street shops in


Central, Causeway Bay and
Tsim Sha Tsui are the most
desired locations for the
flagship stores of newcomers.
Simon Smith, Savills Research

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Briefing | Hong Kong retail sector

February 2012

Market commentary

TABLE 1

With the importance of mainland


wealth playing an increasing role in
the global retail scene, Hong Kong
has acted as a gateway to China, a
vital east-meets-west destination
(and vice versa).

Shopping centre rental growth by district

With the citys cosmopolitan luxury


infrastructure of malls, hotels and
fine dining, Hong Kong is a keystone
in many international retailers
mainland, and even Asian, expansion
plans. For new-to-China brands in
particular, their flagship stores in
Hong Kong are designed to build
brand recognition among mainland
shoppers and trial new lines.
Canton Road is now regarded as
Asias Fifth Avenue or Bond Street
and for most luxury brands this is
now the best performing location in
their global network.
The importance of Hong Kong as a
regional retail hub is more apparent
GRAPH 1

Timeline of international brand arrivals


in Hong Kong

Tenants

Q4/2011

2011

Overall

+2.7%

+20.6%

Hong Kong Island

+2.7%

+24.1%

Kowloon

+3.0%

+22.3%

New Territories

+2.2%

+15.8%

Source: Savills Research & Consultancy

in the aftermath of the financial crisis.


Faced with struggling economies and
cautious consumer sentiment in their
home markets, US and European
retailers have come under increasing
pressure to expand their businesses
into new geographical locations,
such as China and Hong Kong.
This trend is proven by the growing
number of new-to-Hong Kong
international brands over the past
few years, the majority of which have
been fashion brands, with only a
handful of non-fashion retailers. This
move started with European fashion
retailers in 2004 when Zara opened
its first store in IFC Mall, followed by
H&M in 2007. The American brands
followed in 2011, with Hong Kong
seeing as many as four high-street
American fashion brands, such
as Abercrombie & Fitch and Gap,
entering the market.
Prime street shops in Central,
Causeway Bay and Tsim Sha Tsui are
the most sought-after locations for
the flagship stores of newcomers.
A site with an eye-catching duplex
shop front in a prime location is ideal
for a flagship but these are under
heavy demand from luxury brands, as
well as watch and jewellery retailers.

Source: Savills Research & Consultancy

The ownership of retail properties


in Causeway Bay is focused on
a number of key landlords, such
as Hysan, Hang Lung, Wharf and
Chinese Estates, and so these
landlords can respond quickly to
retailers requirements and attract
lots of leasing interest. Examples
include The Lee Gardens, Fashion
Walk, and the recently renovated
Leighton Centre.

With the re-opening of the


gentrified Leighton Centre and
One Hysan Avenue , as well
as the expected completion of
Hysan Place, the connectivity of
the southern part of Causeway
Bay has been improved and is
benefiting the secondary streets in
that part of the district.
Alongside these large-scale
changes, the arrival of a number
of new brands and flagship stores,
such as Forever 21 and Jack Wills,
has brought a new vibe to the
popular shopping area. We foresee
that landlords of retail property to
the north of Hennessy Road, such
as Fashion Walk and shops along
Great George Street, will respond
to these changes by revisiting and
repositioning their portfolios in
order to tackle any forthcoming
challenges and take advantage
of opportunities as they present
themselves.

General market
Recently, more emphasis has
been placed on prime shopping
centres in Kowloon and the New
Territories. These centres, which
offer relatively affordable retail
space (compared with prime
street-shop rents), strong footfall,
a good trade mix and high-quality
management, have attracted many
established international highstreet brands and luxury brand
diffusion lines, as well as high-end
cosmetics brands. Shopping centre
rents increased by 2.7% in Q4 as
a result.

savills.com.hk/research

02

Briefing | Hong Kong retail sector

In terms of the retail market outlook,


uncertainty is growing due to
the eurozone crisis and the US
economic slowdown. What will
happen? Can the current momentum
be sustained?
Looking back, the impact of the
economic crisis in 2008/2009 only
resulted in zero growth in visitor
numbers and a 3% decline in prime
street-shop rentals in 2009. Under
current conditions, Hong Kong is

GRAPH 2

Prime street-shop rental indices, Q1/1992Q4/2011


Overall

Central

Causeway Bay

Tsim Sha Tsui

Mong Kok

450
400
350
300

Q1/2003=10

With an acute shortage of available


space and all the incoming
international brands looking for
flagship stores, prime street-shop
rents increased by another 3.9%
in Q4, bringing the 2011 full-year
increment to 31%, with, expectedly,
rents in Causeway Bay and Tsim Sha
Tsui recording above average growth.

February 2012

250
200
150
100
50
0

Q1 Q2Q3Q4Q1 Q2Q3Q4Q1 Q2Q3Q4Q1 Q2Q3Q4Q1 Q2Q3Q4Q1 Q2Q3Q4Q1 Q2Q3Q4Q1 Q2Q3Q4Q1 Q2Q3Q4


03
04
05
06
07
08
09
10
11

Source: Savills Research & Consultancy

well placed to receive new retailers,


given the seemingly unwavering
appetite of mainland travellers for
luxury goods, and we believe the

core locations will be the main


benefactors. We therefore forecast
that rents of prime street shops will
continue to rise by 15% in 2012.

Please contact us for further information


Savills Retail

Nick Bradstreet
Deputy Managing Director
Head of Leasing
+852 2842 4255
nbradstreet@savills.com.hk

Savills Research

Susan Maclennan
Director (General Retail)
+852 2842 4891
smaclennan@savills.com.hk

Simon Smith
Senior Director, Asia Pacific
+852 2842 4573
ssmith@savills.com.hk

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