APPD Market Report Article

Hong Kong

September 4, 2023

Cathie Chung, Senior Director, Hong Kong


HKD 196


Leasing activities gain momentum in core areas

  • The retail sales value jumped 16.6% y-o-y in April to May alongside the recovery of tourism, with an additional impetus from the disbursement of consumption vouchers. Inbound arrivals in 2Q23 neared 8.5 million, representing slightly over half of the level in 2Q19. Nearly 80% of the visitor arrivals were from Mainland China.
  • Leasing interest gravitated towards core areas, and activities accelerated in 2Q23. Bargain hunting opportunities are becoming scarcer as major prime spots were gradually taken up. While the leasing market was still dominated by mid-to-mass trades, like mass fashion, dispensary and drug stores, the quarter witnessed the return of luxury and high-end brands to core shopping districts.

Vacancy drops further in 2Q23

  • Thanks to improving consumption sentiment and an increase in footfall, the vacancy rate of Overall Prime shopping centres edged down further to 6.0% from 6.3% the previous quarter, while that of High Street shops also dropped to 13.7% from 15.6% the previous quarter.
  • No retail projects were completed in 2Q23. Meanwhile, the considerable amount of new supply slated to complete in the remaining part of this year, totalling about 4.0 million sq ft GFA, could extend vacancy pressure to Overall Prime shopping centres. All of the new projects are located in non-core areas.

Retail rents climb while investment activity falls

  • Retail rents have picked up in 2Q23. Some High Street landlords have raised asking rents on the back of improving retail market sentiment. Rents for High Street rose by 6.5% q-o-q, while those of Overall Prime shopping centres grew at a slower pace, up by 0.8%, as landlords have been focusing on the rebalancing of the trade mix as well as pushing up occupancy.
  • Investment activities moderated in 2Q23 amidst a high interest rate environment, as evidenced by the 60.7% q-o-q drop in total sales volume. Despite this, the investment market interest continued to tilt towards core areas. Notably, two ground floor shops (3,076 sq ft in total) at Mongkok Building in Mongkok were reportedly sold for HKD 150.0 million at an estimated yield of 3.6%.

Outlook: Retail market is expected to improve further

  • Further recovery in the retail market is envisaged, albeit with some downside risks. Leakage in domestic spending led by rising outbound travel, coupled with the RMB depreciation that drags on visitors from Mainland China, could limit retail sales growth. Retail rents of both High Street shops and Overall Prime shopping centres are expected to grow at a slower pace in 2H23, edging up 0%–5%.
  • As the effects of interest rate hikes still linger, investment momentum in the near term will likely stay slow. Capital values are expected to grow relatively slower than rents, causing yields of both High Street shops and Overall Prime shopping centres to expand mildly.

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

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