Hong Kong retail leasing activity still ‘stubbornly low’: Savills

Rents will remain largely flat this year.

A recent Savills report noted that in the face of higher vacancy rates especially on most major streets including Russell Street, Canton Road and Sai Yeung Choi Street, landlords in Hong Kong have been trying to lease up empty units before Christmas and Chinese New Year, but activity levels have remained stubbornly low. 

“The lifting of some travel restrictions in Hong Kong has done nothing to revive tourism to any extent and even demand from F&B tenants, for so long the mainstay of the market, has reached saturation. Relative to street shops, shopping malls are faring a bit better and most report high occupancy as landlords have diligently focused on lease-up rates rather than rents this year,” the report said.

Here’s more from Savills:

Economic challenges facing mainland consumers, a strong Dollar and a softer residential market in Hong Kong are among many factors which may mute any recovery in 2023. For luxury retailers the focus is on shopping malls rather than the high street and as the younger generation becomes a greater force in the retail market, we note a shift away from traditional mainstream luxury towards fresher concepts and more affordable offerings. 

Looking ahead, we see early signs of demand from PRC brands who have not yet entered the local retail scene and in this respect, the Li Ning flagship store letting on Canton Road is significant. Li Ning is a major mainland sports brand named after the gymnast and entrepreneur who founded the company. 

With hopes dashed early on in the year by the fifth wave of the pandemic, rents have ended 2022 largely flat even though a small number of landlords have recently used the possibility of border reopening with the mainland to make minor increases. Most, however, remain flexible. 

Among significant tenant activity, the British brand Fortnum & Mason opened a new outlet at Hong Kong airport in order to prepare for the border reopening while landlord New World will start to operate the 3.8 million sq ft 11 SKIES from 2023 which will eventually include 2.7 million sq ft of retail entertainment and dining. The huge project will open in phases to 2025. 

Looking ahead to next year, a freer border will initially unlock demand from families keen to visit relatives in China and business travellers. Tourists will return first from Southern China, and this is typically driven by day tripper demand for convenience goods within easy reach of the border. 

However, given the economic uncertainties and ongoing COVID restrictions (compare Hong Kong with the outdoor mask-free policies and relaxed PCR test requirements of Thailand, Japan and Korea), we do not expect retailers and travellers to flood back to the city in the short term. We therefore see little to suggest a major turnaround in 2023 and we think that rents will remain largely flat and expect a 0% to 5% rise at most.