November 20, 2014 / 2:22 AM / 3 years ago

Fitch: HK Street Shops, Malls Face Different Fates in Weak Sales

(The following statement was released by the rating agency) HONG KONG, November 19 (Fitch) Fitch Ratings said street-level shops in Hong Kong's prime areas are vulnerable to the persistent weakness in luxury retail sales, and their rents will likely decline at double-digit rates in 2015. In contrast, shopping malls with well-established tenant mixes could outperform the market with flat to slightly positive rental growth in 2015. Street shops in Hong Kong's prime areas are filled with tenants selling products targeting mainland Chinese tourists, whose spending power has fallen due to a crackdown on corruption and slowing property market on the mainland. Sales of luxury goods were down 14.7% yoy in January-September 2014. Luxury brands and cosmetics retailers have halted their expansion plans or even decided to restructure their store networks. For example, gold and jewellery retailer Luk Fook is relocating its stores in Causeway Bay to reduce rental costs and cosmetic retailer Sa Sa is closing some stores in tourist districts. We expect rents of street shops in prime areas, especially those in secondary streets, to decline substantially in 2015 because leasing demand from these popular brands is shrinking. In contrast, shopping mall landlords will be less affected by the weaker luxury retail sales because the tenant mixes for most of them are not skewed heavily towards luxury brands. Their tenant mixes are balanced with more retailers selling daily necessities, food & beverage and medium-end products. Fitch expects that domestic consumption, which grew 4.2% yoy in January-September 2014, will continue to support the sales growth at shopping malls in 2015. Among the different shopping malls, though, performance will vary. Fitch expects Hongkong Land Holdings Limited's (A/Stable) The Landmark and Swire Properties Limited's (A/Stable) Pacific Place Mall, which house many luxury retail tenants, to face challenges in 2015. We believe that The Link REIT will be the least affected in view of its focus on low- to medium-end tenants. Wharf Holdings Limited's (A-/Stable) Times Square and Harbour City are likely to outperform the market based on the landlord's strong track record. Hysan Development Company Limited (BBB+/Stable) has been more active in tenant repositioning to focus on domestic shoppers and Fitch expects it to continue delivering satisfactory sales performance in 2015. For a broader overview of Fitch's outlook for the Hong Kong commercial property sector, please refer to the report titled "2015 Outlook: Hong Kong Commercial Property" published on 20 November 2014. Contact: Alex Choi Associate Director +852 2263 9969 Fitch (Hong Kong) Limited 28th Floor, Two Lippo Centre 89 Queensway, Hong Kong Kalai Pillay Senior Director +65 6796 7221 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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