Hong Kong Retail Rents Not Likely to Rise More Than 5% in 2023

Investors hoping for a major turnaround in Hong Kong’s retail market in the new year may need to adjust their expectations, with property services firm Savills predicting that currently depressed rents are unlikely to rise by more than 5 percent on average during 2023.

Despite attempts by landlords to lease out empty units before Christmas and the upcoming Chinese New Year, activity levels in the city remained stubbornly low in the fourth quarter of 2022, the agency said in a report released this week.

Retail sales in the territory fell 0.7 percent year-on-year in the January-October period. The food and beverage segment offered a bright spot in the third quarter as restaurant receipts rose by 9.3 percent from the previous three months, mainly due to the resumption of banqueting and family dinner gatherings, Savills said Wednesday in a release.

“We expect a muted recovery in 2023 as the market faces ongoing COVID restrictions, a strong dollar, higher interest rates and softer residential prices,” said Simon Smith, regional head of research and consultancy for Asia Pacific at Savills.

Tourism Boost Doubtful

A freer border in the year ahead will unlock demand from business travellers and families keen to visit relatives in China, Savills said. But the agency doesn’t expect retailers and leisure travellers to flood back to Hong Kong in the short term, given the outdoor mask-free policies and more relaxed testing requirements prevalent in neighbouring countries.

For luxury retailers, the focus is on shopping malls rather than the high street as younger buyers become a greater force in the retail market, the report said, noting a shift away from traditional mainstream luxury and towards fresher concepts and more affordable offerings.

Prime street shop rents in Kowloon commercial hub Tsim Sha Tsui edged up 0.1 percent in the fourth quarter of 2022 compared with the previous three months. Central, Causeway Bay and Mong Kok recorded no change.

“Relative to street shops, shopping malls fared better in the last quarter and most report high occupancy as landlords have diligently focused on lease-up rates rather than rents this year,” said Barrie Chan, senior director for retail at Savills Hong Kong.

Shopping Centre Openings

New shopping centre openings in 2023 will add over 3.7 million square feet (343,741 square metres) of gross floor area to Hong Kong’s retail landscape, led by more than 1 million square feet of space at Lifestyle International’s twin commercial buildings in Kai Tak.

New World Development’s 11 Skies at Hong Kong International Airport will open 887,000 square feet of retail GFA in the new year, following the launch of 570,000 square feet of office space at the complex’s three Grade A towers this past July.

New World also plans to introduce 600,000 square feet at the retail portion of Kai Tak Sports Park, and MTR Corporation will open a respective 506,000 and 652,000 square feet at the public transit operator’s malls connected to Wong Chuk Hang and Tai Wai stations.