APPD Market Report Article

Hong Kong

November 28, 2022

Nelson Wong, Executive Director, Hong Kong

-8.6%

HKD 185

Rents
Stable

Market sentiment is picking up at a slower-than-expected pace

  • Total retail sales rebounded by 2.0% y-o-y in July and August as the market continued to stabilise. Most major retail outlets saw a mild rebound in sales, with jewellery and watches recording the highest growth amongst all major categories, surging by 17.2%. Meanwhile, growth in online sales also rebounded by 15.0% during the same period.
  • Although there was substantial uncertainty clouding the business environment, overall market sentiment appeared to have improved over the quarter. Some retailers took advantage of limited bargain hunt opportunities at certain prime street spots. F&B providers and operators, mass fashion retailers, and supermarkets have been the major sources of leasing demand during the quarter.

New completion drives vacancy rate higher

  • AIRSIDE, an office-cum-retail development by Nan Fung Group in Kai Tak, was completed during 3Q22. The development injected around 700,000 sq ft of prime retail supply to the market. According to market sources, the pre-commitment rate of AIRSIDE is around 55%.
  • The Off Anderson Road Site (Lot No. 1078 in Survey District No. 3) in Kwun Tong, was awarded to Link REIT for HKD 766 million. According to Link’s announcement, the site is intended to be developed into a community commercial facility (including retail facilities, a fresh market and car parks) to cater for primarily non-discretionary needs of the immediate catchment.

Investment activities continue to be dominated by local investors

  • High street shop rentals rebounded slightly by 0.9% q-o-q in 3Q22, alongside the gradual return of market confidence. Meanwhile, rentals of prime shopping centres continued to edge down during the quarter as they were still subject to the pandemic’s grip on the economy. Rents dropped 0.3% and 0.7% q-o-q for prime and premium prime shopping centres respectively in 3Q22.
  • Investment sentiment have also picked up slightly. Transactions were mostly made up of small lump sums, suggesting the absence of institutional investors. Capital values of high street shops rebounded only by 0.3% q-o-q in 3Q22. Larger growth in rental over capital values have caused market yields for high street shops to expand slightly, while that for prime shopping centres remained flat.

Outlook: Expected border reopening sets positive outlook

  • Inbound visitor figures are expected to recover noticeably in the coming months as quarantine measures are gradually relaxed. Coupled with the further relaxation in social distancing measures, a more visible rebound in retail sales is expected in the near-to-medium term.
  • The rise in interest rates is expected to drive capital values further down in the near term. Retail capital values are expected to drop more than rents, causing market yields to mildly expand. As a result, the forecasts for high street shops have been downgraded. In 2022, rental and capital values are expected to drop 5%-10%, and rents for prime shopping centres are also likely to drop 0%-5%.

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

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