Despite feeble sales, leasing activities sustain

• Strong resident departures and the relative strength of Hong Kong’s currency continued to deter domestic spending. Total retail sales slipped by 5.0% y-o-y in October and November, moderating from the 10.9% fall in July and August.
• Leasing momentum in core areas remained healthy with substantial international brand engagement. During the quarter, French apparel retailer MARITHÉ FRANÇOIS GIRBAUD and Australian sportswear MAAP debuted their first stores in Hong Kong in prime shopping districts.

Kai Tak unveils around 700,000 sq ft of retail space in Q4 2024

• The near-700,000 sq ft Kai Tak Mall, part of Kai Tak Sports Park, opened in Q4 2024. Meanwhile, the completion date of retail podium SHKP Cullinan Sky (240,000 sq ft) in Kai Tak will be postponed to 2025.
• High Street shop vacancy rate stabilised at 10.5% by end-Q4 2024, while Overall Prime shopping centres fell to 8.7% from 9.4% last quarter.

Rents and capital values still on a negative trajectory

• Retail rents dipped further in Q4 2024 amidst the flagging retail sales performance across the board, alongside more flexible leasing provisions offered by landlords.
• In Q4 2024, High Street shop rents dropped 0.6% q-o-q, with divergent performances across sub-markets. Rents in Overall Prime and Premium Prime shopping centres diminished by 0.3% and 0.4% q-o-q, respectively.

Outlook: Market to enter consolidation phase in the next 12 months

• The survival-of-the-fittest process will continue in the retail market in 2025 given the timid recovery of domestic spending, coupled with foreseeable expansion in online sales.
• We forecast retail rents to edge downward 0 to 5% in 2025, while capital values of High Street shops will drop 5 to 10%, prompting market yields to expand modestly.