Retail sales worsen despite tourism uptick

• The retail market’s contraction endured, with total sales decline widening to 7.8% y-o-y in Jan-Feb from 6.6% in Q4 2024, despite a 10.0% y-o-y growth in inbound visitor arrivals in Q1. Concurrently, northbound travels by local residents surged 14.8% y-o-y in Q1.
• Core area leasing demand held firm, drawing interest from tourism-oriented and mass-market segments such as light refreshment and grocery outlets. Meanwhile, licensed restaurant numbers fell 0.9% q-o-q by end-Q1, reflecting an ongoing market consolidation process.

Prime shopping centres still grapple with vacancy pressure in sagging market

• Following substantial project completions in the past three years, new supply in 2025 will moderate to around 0.7 million sq ft, which include the retail podium of International Gateway Centre in West Kowloon and Phase 2 of Go Park Sai Sha in Sai Kung.
• Amid abundant available spaces and tepid market performance, Prime shopping centre vacancy rate edged higher to 9.2% by end-Q1 2025 from 9.1% in the previous quarter. Concurrently, the High Street shops vacancy rate inched up to 10.6% from 10.5%.

Retail rents dip extends to Q1 2025 amid protracted sales woes

• Retail rents slid further as landlords in general were more compelled to offer discounts to secure tenancy amid market headwinds. Some Prime shopping centres landlords reported negative tenant sales growth, attributed to shifting consumer spending patterns.
• In Q1 2025, High Street rents shrank by 0.8% q-o-q, with all submarkets registering decline. Rents in Overall Prime and Premium Prime shopping centre fell by 0.3% and 0.2% respectively on a chain-linked basis.

Outlook: Cautious optimism in the face of persistent retail slump

• The retail landscape continues to navigate a complex terrain amid challenges posed by intensifying competition from e-commerce platforms, coupled with the glut of available retail space and prevailing macroeconomic uncertainties.
• The persistent price gap between local and regional offerings impedes significant sales recovery, especially in discretionary retail. Stabilising consumer sentiment is expected in H2 2025, buoyed by potential interest rates decline and spending-stimulating mega events.