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Hong Kong retail moves mid-market

News, 18 September 2015

HONG KONG: Hong Kong's retail landscape is changing as more retailers in the territory switch their attention from luxury to mid-market opportunities, a new industry report has revealed.

The trend is such that mid-market retail is set to take over from the luxury sector as the main driver of retail demand in Hong Kong, according to real estate consultancy CBRE in a special report.

After generating a 213% increase in average rents from 2003 to 2014, luxury retailers have experienced a slowdown since 2014 because of changes to the travel patterns of mainland Chinese visitors, the Chinese government's anti-corruption measures, the economic slowdown and other reasons.

Total retail sales in Hong Kong fell 1.8% year-on-year from January to July 2015 while sales of watches and jewellery plunged 15% over the same period, the report said.

As luxury retailers adjust their strategies and seek to save their rental costs, CBRE expected that over the next five years the main driver of demand for retail space will come from mid-market brands.

Furthermore, local demand will gradually regain a larger share of total sales over spending by tourists and it is expected that decentralised areas will offer a significant proportion of new retail space.

"These trends suggest that retail market stakeholders, including luxury and mid-market brands, and street shop and shopping mall landlords, will have to reconsider their business strategies," said Marcos Chan, head of research, CBRE Hong Kong, Macua and Taiwan.

Reinforcing the point, Joe Lin, executive director of retail services at CBRE Hong Kong, said: "The retail sector is experiencing a structural change.

"Landlords must now be more realistic on rental negotiations, as luxury retailers are adjusting their leasing strategies to save costs, and more mid-range brands are looking to tap into prime locations at relatively affordable rental levels. This opens the door for mid-market brands to expand."

Data sourced from CBRE; additional content by Warc staff