Flagging retail sales due to lukewarm resident and tourist spending

• Weak local and tourist spending sent retail sales down to 10.9% y-o-y in July and August. Inbound tourism recovery continued, recording a 9.6% y-o-y increase in Q3 2024, back to 71.1% of the total in Q3 2018 (pre-pandemic period).
• Leasing momentum on High Streets continued, with some international brands making notable comebacks and mainland F&Bs actively seeking prime locations.

High Street shops’ vacancy rate improves slightly

• No new supply was identified in Q3 2024. Projects slated for completion in the remainder of this year include Kai Tak Sports Park (700,000 sq ft) and the retail podium (240,000 sq ft) of Cullinan Sky, both located in Kai Tak.
• The vacancy rate for High Street shops inched downward to 10.5% from 11.5% in Q2 2024, while that for Overall Prime shopping centres remained steady at 9.4%.

Rents and capital values edge downward

• Sales declined across the board, prompting landlords of both High Street shops and Prime shopping centres to extend lease incentives in general.
• In Q3 2024, effective rents edged downward 1.0% q-o-q for High Street and fell 2.9% and 3.0% for Overall Prime and Premium Prime shopping centres, respectively.

Outlook: Market to stay volatile over the next 12 months

• Despite the continual recovery in inbound tourism, retail rents are expected to flatten, driven by the ongoing risks from consumption downgrade and leakage.
• Despite interest rate cuts, softening of both rent and capital value growth are expected to drive marginal expansion of market yields for High Street shops.