APPD Market Report Article

Hong Kong

December 1, 2021

-11.4%

HKD 210.6

Decline
Slowing

Local consumption key to supporting market rebound

  • Inbound visitation remained at minimal level as travel restrictions remained in place in 3Q21, dropping 22.1% y-o-y in July and August. Benefiting from the consumption voucher scheme, total retail sales registered 7.3% y-o-y growth in July and August. Clothing and footwear recorded the highest growth amongst all major categories, surging 35.1% during the same period.
  • Leasing momentum picked up noticeably in 3Q21 as confidence of retailers continued to strengthen under more affordable rentals along side the gradual revival in the overall market. F&B operators, food retailers, fashion, and lifestyle and sports goods retailers remained to be the major sources of leasing demand during the quarter.

Central Market opens for operation

  • No prime shopping centres were completed during the quarter. The ‘Yuen Long Station Development, YLTL 510’ development site in Yuen Long, was named ‘Yoho Mix’. The shopping centre is expected to complete in 2022.
  • Central Market, that obtained its occupation permit in 4Q20, was officially opened in 3Q21. Owned by the Urban Renewal Authority, this three-storey complex added about 119,000 sq ft of retail floor space to the market. Chinachem was awarded the operation contract of Central Market for a period of 10 years.

Retail assets in core areas regains investor interest

  • The vacancy rate of street shops and shopping centres improved quite noticeably in 3Q21. The high street shop rental decline moderated to 0.9% q-o-q due in part to less marketable stock in certain spots. Meanwhile, shopping centre landlords in general continued to hold rents firm. Overall prime shopping centre rents remained flat and premium prime shopping centre rents edged down by 0.2% q-o-q.
  • The investment market remained active in 3Q21. Retail assets in core areas regained investors’ interests with anticipation of rents to bottom out. The high street shop capital value decline moderated to 0.5% q-o-q in 3Q21. Market yields for high street shops saw a mild compression, while overall and premium prime shopping centre yields remained flat during the quarter.

Outlook: Rents and capital values are anticipated to bottom out

  • Tourism level is likely to stay low in the coming months as travel restrictions remain in place in Hong Kong. Meanwhile, local consumption is expected to be further stimulated with the second phase of the consumption voucher scheme coming in effect in 4Q21. Retail rents are expected to marginally rise in the 0-5% range in 2H21.
  • Capital values of high street shops in core areas are expected to rise moderately with anticipation of potential rental growths in 2H21. Market yield is expected to see a mild compression, attributable to low interest rates and improved investment sentiment. Retail assets in non-core areas will continue to attract investors’ interests given the relatively stable returns.

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

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