Facing the dual pressures of Hong Kong residents spending more in mainland China and changing tourist consumption habits—evolving from traditional shopping to diversified experiential exploration—Hong Kong's retail market has experienced significant downward pressure in the first four months of this year. The provisional estimate for total retail sales reached HK$28.9 billion, a year-on-year decline of 5.6%. This downturn has impacted not only luxury goods but also daily necessities in supermarkets, while the F&B industry has had to adapt to survive.
Real estate insiders note that retail shop rents in core districts remained stable in the first half of the year, while non-core district rents fell by 10% to 15%. Transaction activity has concentrated on HK$10-20 million shops in residential neighborhoods, with an estimated 1,800 to 2,000 leasing deals in the first half. However, with the government actively promoting tourism and mega-events, coupled with the traditional peak consumption season in the second half of the year, leasing transactions are expected to improve to around 2,500 deals, with rents likely stabilizing.
Residential neighborhood shops become most sought-after by investors
Raiky Wong, Director of Centaline Retail Department, told Wen Wei Po that around 300 shop transactions occurred in the first half of the year, primarily driven by individual investors and bank disposals. Prices have retreated to levels last seen in 2006-2007, with yields generally ranging from 4% to 8%, and in some cases reaching 10%.
Due to the high price tags of core district shops (typically HK$300-400 million, enough to buy an entire building in non-core areas), transaction volumes have been limited. Instead, shops priced between HK$10-20 million in residential districts like Kwun Tong, Sham Shui Po, and Mong Kok have been the most sought-after.
F&B and fashion brands seize lower rents to expand
Wong noted that half of the leasing activity in the first half came from the F&B sector. For example, the Ngan Lung chain leased a 12,000 sq ft duplex shop on Hankow Road, Tsim Sha Tsui, for HK$400,000 per month, a 60% drop from peak rates.
Other industries are also capitalizing on lower rents:
Cotton On expanded against the trend, leasing three floors (17,941 sq ft total) at 110-116 Queen's Road Central for HK$900,000/month.
The new and old rents per sq ft were HK$50.2 and HK$51.4, respectively—similar to each other but 55% lower than the peak rate of HK$111.5/sq ft in 2014.
Vacancy rates: Core districts stabilize, some areas improve
Wan Chai saw the biggest drop in vacancy rates, recording 4.53% in May (down 0.04% month-on-month and 0.43% year-on-year).
Central recorded 6.68%, up 0.02% monthly but down 0.1% yearly.
Causeway Bay rose to 5.98% (up 0.05% monthly and 0.18% yearly).
Tsim Sha Tsui held steady at 6.23% (unchanged monthly, but a 1.82% yearly drop).
Mong Kok recorded 8.31% (down 0.02% monthly but up 0.46% yearly).
Wong believes that with falling interbank rates, government-led tourism and mega-event promotions, and the traditional year-end shopping season, the retail leasing market will improve. He forecasts around 2,500 leasing deals in the second half, with rents stabilizing.
(Source: Wen Wei Po; Journalist: Leung Yuet-kam; English Editor: Darius)
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