Q1 Retail Rents See First Major Turnaround in Four Years

• Both the rents of prime street shop and major shopping centres showed a strong rebound of up to 3.9%-5% quarter-on-quarter, indicating the first major turnaround in rents since Q1/2019.
• As retailers remained cautious in taking up shop spaces, vacancy rates of four major prime streets remained high. In Q1/2023, Canton Road saw around 40% of the prime shops still being vacant, while Russell Street, Sai Yeung Choi Street South and Queen’s Road Central fared better with 27%, 23% and 20% vacancy respectively.
• Benefited from favourable factors in the retail market, Savills expect an 10% rental increase in prime shopping mall, while the prime street shops can experience an 8%-12% rise in 2023.

Retail market warming up to the resumption of cross-border travel

After the full resumption of cross-border travel, a total of 4.4 million visitors entered Hong Kong in Q1/2023, a lower-than-expected number reaching 24% of the pre-covid level in 2019. With increasing footfalls from the tourists, leasing enquires from the tourism dependent sectors such as medicine and cosmetics escalated in Q1.

Rents saw major turnaround since Q1/2019

Retail rents have seen a sharp decline since the social unrest in Q2 2019, with no chance for recovery during the COVID-19 pandemic that followed. Rents have largely stabilized during 2022, but not until the first quarter did we see the first significant turnaround in rents as boosted by the resumption of cross-border travel. Benefited from the leasing deals from the tourism dependent sectors, prime street shop rents in Central, Tsum Sha Tsui and Mong Kok rose by 5.0% quarter-on-quarter, while Causeway Bay recorded a slight rise of 0.8% from Q4 2022, leading to an overall growth of 3.9% for prime street shop rents. The rents of major shopping centres increased by 4.8%-5.2% quarter-on-quarter territory-wide, signifying steady improvement in the prospects of shopping centres' footfall.

Vacancies in prime retail streets remained high

Meanwhile retailers were still cautious expanding into prime areas. In Q1/2023, Canton Road saw 40% of the prime shops being vacant, while Russell Street and Sai Yeung Choi Street South fared better with 27% and 23% vacancy respectively. Landlords of street shops at Queen’s Road Central who had accepted a change in tenant profile by welcoming drug stores, mid-end fashion and bakery shops helped push the vacancy rate down to 20% as a result.

MICE events expected to boost the local retail market

The ongoing world-class events in sports and art, plus a number of future MICE events, will help further attracting tourists, in particular business travellers with high spending potential, back to the territory and this is likely to rejuvenate the local retail market.

Favourable Factors to boost rental growth in 2023 by 8%-12%

With favourable factors in the retail market, Savills expect an increase in rents of prime shopping mall of 10% in 2023, while that of prime street shops can expect an increase of 8%-12% in the year.

We also expect a stable rental growth in neighbourhood malls especially those in the high densely populated areas. Surrounded by well-developed community facilities and infrastructures, residents tend to purchase daily necessities in their self-contained community, paving a high development potential for the neighbourhood associated tenants to enter the non-core areas.

Mr. Jack Tong, Director, Research & Consultancy of Savills commented: "Rent of prime street ad shopping mall experienced a quarterly increase of 3.9% and 5% respectively, marking the first rise since Q1 2019.”

Mr. Barrie Chan, Senior Director, Retail of Savills said: "Although retailers are still cautious, some had taken the chance to secure prime spaces of late, resulting in a more diverse mix of retailers on the prime streets. Recent leasing transactions included an art gallery, watch retailer and a chained jewellery brand which took up various shop spaces in Central, Tsim Sha Tsui and Causeway Bay."