Moving into 2015, one question that I get often is the impact of the Occupy Central protests on the local retail property market. Although the protests badly disrupted traffic and accessibility in core shopping areas and negatively affected retailers in protest areas, economic data over the period shows that the overall impact on the retail market wasn’t as severe as it may first seem. Retail sales were up 2.8% y-o-y in 4Q14 despite the disruptions, an improvement on the 1.6% y-o-y recorded in the preceding quarter, and Mainland tourist arrivals and their appetite for consumption remained strong throughout the entirety of the protests, merely shifting their shopping to less affected areas.

That’s not to say that the protests did not have any lasting legacy on the local retail market. Since the protests, retailers have shown a greater preference for shopping centres over street shops, on the premise that shopping centres would be less affected by any future protests.

Still, with long waiting queues already at most of the city’s prime shopping centres, retailers are being forced to look elsewhere. Shopping centres near the border, such as New Town Plaza and tmtplaza, have been gaining in popularity with Mainland shoppers in recent years and as a result, have become increasingly attractive options for retailers looking to expand. Over the past year, we have seen quite a number of decentralised shopping centres undergo refurbishment and repositioning to attract demand from mid-tier and affordable luxury brands.

The shift in retailer preferences towards shopping centres is likely to further weigh on street shop rentals, which are already under pressure from rising vacancy. However, with international retailers continuing to view Hong Kong not only as a strategic entry point for the Mainland market but also as a primary retail node within the Asia Pacific region demand on the city’s most prime retailing strips should hold up better. Moreover, if retail sales return back to historic trend growth levels as forecasted, retailers who opted to stay on the sidelines in 2014 are likely to bring their requirements back to market.

Against this backdrop, we expect shopping centre rents to edge higher in 2015 while street shops will likely remain under pressure.

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