Retail sales dipped 1.6% in January-February

Customers chose to spend their dollars abroad than locally.

Total retail sales weakened by 1.6% YoY in January and February combined, marking the first decline in two years, according to CBRE’s retail market overview for Q1 2019.

Despite an uptick in the local stock market, stronger housing market and continued low unemployment, many local consumers opted to travel during the quarter than spend locally, with outbound departures by locals edging up 8.1% YoY in January and February combined. The report noted how improvements in cross-border infrastructure has facilitated easier same-day travel for tourists.

“The change in tourist spending patterns continues to prevent big-ticket retailers from achieving strong sales growth,” the report’s authors explained, highlighting that sales of watch & jewellery goods and electrical appliances fell 2.8% and 18.3% YoY, respectively, in January and February combined.

Meanwhile, solid medicine and cosmetics sales supported steady leasing demand for retail premises in core areas by relevant retailers in Q1 2019. These included personal care retailer Sa Sa, which leased a 4,000 sqft unit formerly occupied by Armani Exchange in Star House in Tsim Sha Tsui.

Korean retailers were also observed to remain active, as Amorepacific leased a 1,900 sqft store at Lee Garden One in Causeway Bay, whilst O-lens committed to a 1,100 sqft previously occupied by China Mobile on Sai Yeung Choi Street South in Mong Kok.

Other leasing deals in Q1 2019 included the announcement by Japanese discount chain Don Quijote that it would open its first store in Hong Kong. The retailers has reportedly committed to a 15,000 sqft unit on the B/M of Mira Place 2 in Tsim Sha Tsui, and aims to open towards the middle of 2019.

In addition, Q1 2019 saw some sporting good retailers leasing relatively large spaces. In Mong Kok, Fila took up a 5,600 sqft shop along Nathan Road, whilst local chain Wan Kee Sports committed to a 13,700 sqft unit consisting of four floors in a building on Sai Yeung Choi Street South.

According to CBRE, leasing activity in Mong Kok was mostly driven by internal relocations. “These included 6ixty 8ight, which committed to a 7,000 sqft unit on Shan Tung Street in a move that will see it relocate from another unit on the same street. Elsewhere, Lush relocated to a 1,800 sqft unit on Sai Yeung Choi Street South, adjacent to its current place,” they highlighted.

Following the expiry of several short-term leases, overall vacancy along tier 1 streets edged up by 0.8 percentage points (pp) QoQ, as steady sentiment and leasing activity ensured overall high street rents in core areas, whilst shopping mall rents remained unchanged during Q1 2019.

According to CBRE, the growth in Chinese visitor arrivals will benefit the sales for personal care products, which in turn will ensure retailers in this category remain a key source of leasing demand. Healthcare, medical centres, and health-centric food and beverage (F&B) stores are also expected to emerge as new sources of demand due to the city’s ageing population and rising health awareness.

On the other hand, as retail spending shifts from valuable goods to daily necessities, expansion by luxury retailers is unlikely to occur in the short term.

“Coupled with the impact of e-commerce on fast fashion operators and supermarkets, demand for large flagship stores will continue to diminish, prompting landlords to subdivide large flagship stores into smaller units,” the authors highlighted. CBRE further added that pop-up stores may likely remain a key means for retailers to strengthen their brand awareness and gauge customer appetite for new products.