APPD Market Report Article

Hong Kong

August 26, 2022

Nelson Wong, Executive Director, Hong Kong

-10.2%

HKD 183

Decline
Slowing

Confidence towards business environment gradually returns

  • Total retail sales rebounded by 4.7% y-o-y in April and May with significant support from the disbursement of consumption vouchers. Electrical goods saw the largest growth of all major retail outlets, surging up by 20.1%. Meanwhile, online sales remained robust and surged up by 17.5% during the same period.
  • In 2Q22, as the pandemic situation stabilised, retailers gradually resumed their expansion plans and looked to take advantage of limited bargain hunt opportunities at certain prime streets and shopping centres. F&B, groceries, kids entertainment, art galleries and car showrooms were the major sources of leasing demand during the quarter.

Higher vacancy level expected due to change in supply schedule

  • The projection of completion for How Ming Street Bus Depot Redevelopment in Kwun Tong has been brought forward to 4Q22. Developed by Sun Hung Kai Properties and Transport International Holdings, the integrated commercial complex will add around 500,000 sq ft of retail supply to the market.
  • The scheduled completion of Hopewell Centre 2 in Wanchai has been postponed to the first half of 2023. Developed by Hopewell Holdings, the shopping centre will add around 270,000 sq ft of retail space to the market. Overall, around 2.5 million sq ft of new supply is scheduled to be completed this year, including the completed 11SKIES Phase 1 of around 1.1 million sq ft.

Uncertainty keeps investment sentiment soft

  • Despite stabilisation in June, there were still plenty of uncertainties clouding business operations, including business hours and format. Rental pressure built up further in 2Q22, resulting in high street shop rentals dropping by 3.2% q-o-q and prime and premium prime shopping centres rental declining by 1.8% and 2.3% q-o-q, respectively.
  • With expectations of further increases in interest rates, together with a lack of confidence from investors, capital values for high street shops dropped by 5.0% q-o-q in 2Q22. Sharper drops in capital values over rentals have caused market yields for high street shops to see a slight expansion in 2Q22. Meanwhile, capital values of overall prime shopping centres remained steady.

Outlook: Delayed recovery expected to pick up from 2H22

  • The retail market is likel to remain very policy-driven in the near term. Inbound tourism is expected to stay low and retail sales will likely continue to be predominantly domestic in nature. A more visible rebound in retail sales will materialise as and when travel restrictions are lifted.
  • Market recovery is expected to pick up in 2H22. Retail rents are expected to rise more visibly than capital values, causing market yields to mildly expand. From a low base, high street shop rental and capital values are forecasted to grow by 0-5% in 2022, and overall prime shopping centre rents are also expected to rise by 0-5% in 2022.

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

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