APPD Market Report Article

Hong Kong

February 28, 2022

-6.9%

HKD 211

Decline
Slowing

Robust retail sales due to recovery in local consumption

  • Total and PRC visitor arrivals hovered at minimal levels in October and November despite both seeing double-digit growth of 36.8% and 56.2% y-o-y, respectively. Robust domestic consumption powered total retail sales to grow by 9.5% y-o-y in October and November. Online sales recorded the highest growth amongst all major categories, surging 30.2% during the same period.
  • The overall gradual recovery of the market has encouraged retailers to commit to longer lease terms and more brick-and-mortar shops under more affordable rentals. Luxury fashion continued to shrink while F&B and bakery, grocery, mass market fashion, sports and lifestyle trades as well as experiential retail have been the major sources of leasing demand in 4Q21.

Henderson Land wins the Central Harbourfront Site 3 tender

  • The Central Harbourfront Site 3 (IL 9088) at Man Yiu Street, Central, has been awarded to Henderson Land for HKD 50.8 billion in November this year. The future commercial development will be completed in two phases containing about 660,000 sq ft of office space and 940,000 sq ft of retail space in total, with phase 1 (“Site 3A”) due to complete by 2027 and phase 2 (“Site 3B”) by 2032.
  • No prime shopping centres were completed during the quarter. The ‘Tung Tau Industrial Area, YLTL 532’ development site in Yuen Long, was named as ‘One North’. The site is owned by Sino Land and is expected to complete in 2022.

Rental and capital values are bottoming out across the board

  • The vacancy rate of high street shops and prime shopping centres further improve in 4Q21. High street shop rentals rose by 0.4% q-o-q and overall prime shopping centre rents edged up 0.2% q-o-q, driven by robust performances in certain spots. Meanwhile, as vacancies remained relatively elevated in some premium malls, premium prime shopping centre rents dropped by 0.2% q-o-q.
  • The investment market remained active in 4Q21. Investors’ interests in retail assets in core areas strengthened further in anticipation of more visible rental growth. High street shop capital value rose by 4.0% q-o-q. Market yields for high street shops and overall prime shopping centres saw a mild compression, while premium prime shopping centres’ yields remained flat during the quarter.

Outlook: Rental and capital values to rebound more visibly in 2022

  • Tourism is expected to slowly recover in the near-to-medium term despite travel restrictions still remaining in place. Local consumption shall continue to underpin retail sales in the beginning of 2022. From low levels, high street shops and overall prime shopping centres rents are expected to rise in the 5-10% and 0-5% range, respectively, in 2022.
  • Retail assets in core areas shall continue to regain investor’ interest given the positive outlook of the market. Capital values of high street shops in core areas are expected to rise more visibly than rental, which in turn drives market yields to compress further in a moderate manner. Meanwhile, investors’ outlook in community assets shall remain positive 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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