Affordable consumption supports leasing demand

• From January to November, the number of Hong Kong resident visits to Shenzhen hit a record high, increasing by 12.5 ppts compared to the same period in 2019. This, to some extent, accelerated the current weak recovery in local consumption.
• Recent consumption stimulus policies and cross-border consumption by Hong Kongers have supported demand for affordable goods. Affordable F&B, clothes and daily consumer goods remained the main forces driving demand, accounting for 65% of new leases by count.

No new projects; citywide vacancy remains stable

• No new projects entered the market in the quarter. The slight decrease in Urban vacancy rates was primarily due to proactive leasing strategies implemented by core urban projects, effectively attracting numerous large catering businesses.
• The Suburban vacancy rate rose marginally by 0.3 ppts q-o-q. Due to the downturn in the film industry, some cinemas located in Suburban malls have begun to surrender space, resulting in large vacancy inflation in certain projects.

Citywide rent decline widens amid weak leasing momentum

• Sales declined across the retail subsectors, especially in F&B, exerting further downward pressure on market rents. Urban rents dropped by 2.0% q-o-q on a chain-link basis. Some landlords offered short-term rent concession to retain existing tenants.
• Suburban rents also declined by 1.8% q-o-q, and the rent differentiation among projects was increasingly evident. Some well-performing projects experienced slight rent increases, while projects with low consumer footfall had to cut rent despite the current low base.

Outlook: The full recovery of consumption still needs time

• In 2025, the government is projected to continue enhancing consumption vouchers and trade-in policies, boosting retailer confidence. Daily consumption and hobby-driven consumption will emerge as drivers for leasing demand.
• We expect the new supply to be around 0.9 million sqm in the next 12 months, a historic high. Large-scale projects with slow pre-leasing progress may push up the overall vacancy rate.