Underperforming retail sales amid inbound tourism growth

• Retail sales tumbled 12.2% y-o-y in April and May. Inbound visitor arrivals surged 117.2% y-o-y to 9.9 million, yet, with 25.2 million outbound departures, the outbound-inbound ratio rose to 2.5 in the quarter from 2.2 in Q1 2024.
• The leasing market witnessed a growing divergence in demand, with luxury and international brands and mid-to-mass segment tenants keen on securing prime locations.

Vacancy rates in Prime shopping centres and High Street shops are increasing

• Hopewell Centre II in Wan Chai and YOHO Plus in Yuen Long were completed in Q1 and Q2 2024, respectively, injecting a total of 307,000 sq ft of GFA of new retail space into the market.
• The vacancy rate for High Street shops rose marginally to 11.5%, while that for Overall Prime shopping centres edged up to 9.4% by end-Q2 from 9.1% in Q1 2024, amid pressure from the influx of new retail space in recent quarters.

Rents and capital value growth face more pressure

• Retail rent growth for High Street shops narrowed to 1.3% q-o-q in the quarter, while that for Prime shopping centres slowed to 0.2% q-o-q amid moderating retail sales growth and the withdrawal of some anchor tenants.
• The investment market was less active in Q2 2024, with total sales transactions of retail property valued at HKD 20 million or above plunging by 62.6% q-o-q and 26.8% y-o-y.

Outlook: Bumpy retail market recovery to be expected in H2 2024

• Shrinking retail sales, alongside the weaker-than-expected impetus from tourist spending, will pose more challenges to the retail market ahead. We have downgraded the rent growth forecast for High Street shops to be up 0%–5% in 2024.
• With the investment market anticipated to experience a softening trend in H2 2024, capital values are forecast to edge downward marginally in the remainder of the year, prompting a mild expansion of market yields for High Street shops in 2024.