APPD Market Report Article

Hong Kong

May 26, 2024

Cathie Chung, Senior Director, Hong Kong


HKD 212


Despite tourism revival, retail sales growth is moderating

  • In 1Q24, inbound visitor arrivals increased by 154.4% y-o-y to nearly 11.1 million, about 72% of the pre-pandemic volume in 1Q18. With 24.1 million outbound departures, the resulting outbound-inbound ratio remained high at 2.1 in the quarter. Retail sales growth in January and February slowed to 1.4% y-o-y, moderating from 9.7% in 4Q23.
  • Leasing sentiment remained steady, with tenants from the jewellery and gold, drugs and dispensary, light refreshments and fashion segments, alongside some international brands, being the major sources of demand in 1Q24. Meanwhile, more operators from the mainland continued to expand their footprint in the local retail market. 

Glut of new retail space to come on stream in 2024

  • Over 1.2 million sq ft of new prime retail space is expected to be completed in 2024, following the record-high completion of 3.8 million sq ft in 2023. This could contribute to increased pressure on vacancy rates in Prime shopping centres, further intensifying competition within the market.
  • The vacancy rate for High Street shops decreased slightly to 11.1% by end-1Q24 from 11.6% the previous quarter, thanks to the continuous resurgence of inbound tourism. The vacancy rate in Prime shopping centres rose marginally to 8.3% in 1Q24 from 8.1% last quarter, which can be mainly attributed to the closure or downsizing of some anchor tenants.

Rent and capital value growth tapers off

  • In March, Chinachem, which has a large commercial real estate portfolio in Tsuen Wan, announced the acquisition of D-Park, with a total of 630,000 sq ft of retail GFA and approximately 1,000 carpark spaces, for HKD 4.02 billion (HKD 6,381 per sq ft) from New World for a long-term investment, further optimising its retail and hospitality portfolio in the Tsuen Wan vicinity.
  • Retail rents in High Street shops rose by 1.7% q-o-q in the quarter, moderating from the 2.3% increase in 4Q23, while those in Prime shopping centres remained relatively stable, up by 0.7% q-o-q in 1Q24.

Outlook: Market recovery clouded by sluggish consumption

  • Despite the return of inbound tourism, the retail market recovery is expected to endure while facing more downside risks in the near term due to sputtering local consumption, dwindling tourist spending and the currently elevated interest rates, which could flatten the upward trajectory of both rents and capital values.
  • With the government’s relaxation of the maximum loan-to-value ratio from 60% to 70% for non-domestic properties, as well as more vendors facing sales pressure being more flexible with their pricing, investment momentum in retail properties is likely to receive a boost.

Note: Hong Kong Retail refers to Hong Kong's overall prime shopping centre and high street retail markets.

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