Retail sales growth is something commercial property investors fervently hope for. When shoppers are buoyant, tenants are doing well, landlords like to raise their rents, leading over the long term to juicier dividends for investors.
In many countries experiencing low wages growth, there are fears this dynamic could operate in the other direction. Globally, retailing landlords have been on the nose as a result. Low retail sales and corresponding wages growth, plus increasing competition from online players, means rental pressure in some markets is trending down rather than up.
For investors in APN’s AREIT Fund, this isn’t a cause for concern. With a weighting towards the country’s best shopping centres, yields are strong – currently 6.57%1 – and the future looks bright. We even managed to top up our biggest holding in October last year when Scentre fell into the bargain bin.
But modest retail sales growth does raise an interesting question; where can commercial property investors get exposure to rapidly rising retail spending that should lead to higher dividends down the track? Hong Kong could be at the top of your list, especially if you’re an income investor aware of the dangers of home bias but haven’t yet done anything about it.
Hong Kong’s retail scene has undergone a stunning transformation. Two years ago, year-on-year retail sales growth was non-existent. In February this year it hit 29.80%. As the following chart shows this is a level not seen since 20102.