Hong Kong to see 2.5m sq ft of new retail space by end-2023
In Q3, two new shopping centres were completed.
One of the two Kai Tak Twin Towers (NKIL 6657) in Kai Tak (550,000 sq ft of 1,100,000 sq ft GFA in total) and the Southside (506,000 sq ft GFA) in Wong Chuk Hang were completed in 3Q23.
According to JLL, another 2.5 million sq ft GFA of retail space, all located in non-core areas, is slated for completion by the end of 2023.
Here’s more from JLL:
The vacancy rate for High Street shops hit its lowest level since the pandemic, dropping further to 12.6% from 13.7% in the previous quarter, with improvement in Tsim Sha Tsui. Meanwhile, Overall Prime shopping centre vacancy edged up to 6.4% from 6.0% the previous quarter, due to the lower than expected commitment rate of projects newly completed within the past two years.
Persistent retail sales growth led by tourism boom
In 3Q23, inbound visitor arrivals reached 10.4 million, representing 65% of pre-COVID-19 levels in 3Q18. Supported by the rise in tourist spending and the new round of consumption voucher disbursement, retail sales in July and August rose by 15.2% y-o-y, slightly lower than the 16.6% growth recorded in April and May.
Leasing activity continued to gather in core areas in 3Q23, with tourist-favourable trades such as jewellery, gold and watches, and drugs and dispensary, seeing notable expansion at prime locations. Meanwhile, shops selling light refreshments also sought opportunities to expand in view of a gradual shift in tourist spending from shopping to dining outside hotels.
Rent and capital value growth decelerates
Retail rent value growth in High Street shops moderated to 3.6% in the quarter, compared to the 6.5% growth in 2Q23, as major prime locations were gradually taken up, leaving less favourable spots available in the market. With the further recovery in footfall and tenant sales, as reported by a majority of landlords, retail rents in Overall Prime shopping centres rose 0.8% in 3Q23.
Despite high interest rates, there was a slight improvement in investment sentiment during 3Q23. Total transaction volume increased by 3.2% q-o-q, alongside a 1.7% q-o-q growth in capital values. On the back of thriving inbound tourism, more cash-rich investors are regaining confidence, and some properties in core areas were transacted with a sizeable lump sum.
Outlook: Declining demand to hold retail market recovery in check
Retail leasing momentum is anticipated to continue its recovery trajectory, further supported by various government initiatives aimed at increasing footfall and retail spending, such as the night-economy revitalisation campaign. Yet, the retail market still faces risks from consumption leakage, led by a faster rebound in outbound travellers than inbound arrivals as the year-end approaches.
With limited supply and the ongoing retail market recovery, High Street shops rents are expected to grow further in the next 12 months. Meanwhile, amid intensifying regional competition and abundant new supply, vacancy rates in Overall Prime shopping centres are expected to trend upward. We maintain our forecast for Prime shopping centre rents to grow 0%–5% in 2023.
Note: Hong Kong Retail refers to Hong Kong's overall prime shopping centre and high street retail markets.