HK retail sales slowed in 3Q12

Guess which to blame on sales slipping to 4.3% growth from 10.2% in 2Q.

Here's from Jones Lang LaSalle:

The gloomy global economic situation and slowing economic growth in China contributed to retail sales growth slowing from 10.3% y-o-y in 2Q12 to 4.2% y-o-y in July–August. At the same time, the number of tourist arrivals accelerated by 17.2% y-o-y in Jul–Aug compared with 15.3% y-o-y in 2Q12. Leasing demand, however, remained intact with sentiment among retailers remaining positive despite uncertainties in the market outlook. Retailers did, however, turn more cost cautious.

The tight availability of shops on the high streets saw leasing demand continue to spill over to secondary locations and into fringe streets in core locations. Ralph Lauren, for example, leased a ground floor shop at 2–10 Gough Street in Sheung Wan (3,600 sq ft) for HKD 240,000 per month.

Supply
V City (269,000 sq ft) in Tuen Mun remained on schedule to be completed by end-2012. Opening in 2Q13, V City is expected to be fully let while over 80% of its tenants will be opening their first stores in the Tuen Mun area. Cheung Kong won the development rights of the Bayside Project at Tsuen Wan West Station for HKD 9.6 billion. The project is expected to provide some 2,400 apartment units and 436,476 sq ft of retailing floor space when completed in 2018.

Asset Performance
Supported by an active leasing market, rents continued to rise in 3Q12 though at a slower rate. The growing interest of retailers in prime shopping centres in non-core locations helped push overall prime shopping centre rents up by 2.7% q-o-q, slightly higher than the 2.0% y-o-y recorded in premium prime shopping centres.

Already at record high levels, capital values of high street shops grew by a further 3.0% q-o-q in 3Q12 though slower than the 9.8% q-o-q growth achieved in 2Q12.

The investment market remained active in 3Q12, punctuated by a number of notable en bloc sales transactions. Laguna Plaza (163,611 sq ft) in Lam Tim was acquired by CLSA Capital Partners for HKD 1.5 billion while Radiant Centre (10,848 sq ft), a ginza-type commercial development in Causeway Bay, was acquired by a local investor for HKD 368 million.

12-Month Outlook
We expect the extended golden week holiday and Christmas season to draw more tourists to Hong Kong in 4Q12 and help stimulate demand. The global economic slowdown, proposed increase of minimum wages and inflationary risk will all continue to pose challenges for Hong Kong retailers over the near-to-medium term. Hence, retail sales growth is expected to remain slow. The exorbitant rents and limited space availability in core locations will likely continue
to shift the leasing focus of retailers towards shops in fringe streets, where shopper footfall is increasing. Against this backdrop we expect both rents and capital values to continue to trend higher over the next 12-months.