Savills: Hong Kong's retail and leasing market showed significant structural recovery in the second quarter and diverged significantly

The Zhitong Finance App learned that Savills's latest “Hong Kong Retail and Leasing Market Report” indicates that the Hong Kong retail market continued to improve in the second quarter of this year, but the basis for recovery is still narrow. The core business district benefited from the return of travelers, demand for luxury goods, expansion of flagship stores and experiential business, and rents remained stable in the second quarter after rebounding in the first quarter. In contrast, shopping malls in Minsheng District were still affected by northern consumption, online shopping substitution, and weak daily consumption, and rent and revenue quality continued to be pressured.

The report shows that the market has entered a structural restoration phase dominated by asset quality and tenant mix. Rents for core street stores in Hong Kong's four core retail districts (Central, Causeway Bay, Tsim Sha Tsui and Mongkok) remained flat month-on-month in the second quarter of this year, reflecting that the market is absorbing the increase in the first quarter and has yet to enter a new rapid upward cycle. During the period, overall rents in major shopping malls fell 1.8% month-on-month; the New Territories saw the biggest decline, down 2.7% month-on-month; Kowloon and Hong Kong Island fell 2% and 0.5%, respectively.

Consumption recovery in the Hong Kong retail market was uneven in the second quarter. Sales of jewellery, watches and luxury gifts rose 22.1% year on year, and durable consumer goods rose 13.8%; however, supermarket sales rose only 0.9%, and some fresh food categories remained flat or recorded declines, reflecting still weak daily consumer demand.

In the face of structural challenges, the consumption of residents going north is estimated to involve about HK$55.7 billion a year; in addition, an average of about 10.4 million Hong Kong residents left the country at the beginning of this year, it continues to divert traffic and consumption power from local shopping malls. Even if some shopping malls maintain high occupancy rates, rent renewal and rent income per square foot are still under downward pressure.

In addition, starting this year, the market is expected to supply and operate about 8 million square feet of new retail floor, mainly in new development zones and livelihood areas. Competition for future projects will not only be limited to recruiting tenants, but will also depend on whether it is possible to establish a clear positioning, optimize the tenant mix, and attract special visits from consumers.

Tang Zhuoxuan, director of Savills Hong Kong Research and Consulting, said that the Hong Kong retail market is gradually improving, but at this stage it is still a structural restoration led by asset quality rather than a full rebound. The core location benefited from the return of travelers, luxury consumption and experiential retail demand, and rents were the first to stabilize; however, shopping malls in Minsheng District still had to face competition brought about by outflow of consumption, online shopping alternatives, and new supply. In the future, landlords will need to focus more on project positioning, customer coverage and consumption conversion capacity to maintain the sustainability of rental income.

Chen Zeming, senior director of Savills Hong Kong's retail department, said that retail leasing demand has improved, and the market also shows that new demands such as mainland brands, sports and entertainment, healthy living, light dining, and immersive experiences continue to emerge. However, tenants will be more careful in choosing locations, and brands will pay more attention to whether shopping malls can bring actual traffic and sales conversion. For owners, the flexible introduction of pop-up stores, lifestyle dining, pet-friendly and interactive experience formats, and adapting the tenant mix according to community consumption patterns will be the key to improving the competitiveness of the project.