High vacancy rates in Hong Kong’s retail property market are likely to persist in the near term, which is providing incentives for retailers including Swatch, Abercrombie & Fitch and Mango to snap up prime spaces, according to analysts.
In the city’s four core shopping districts – Causeway Bay, Central, Mong Kok and Tsim Sha Tsui – between 8.9 per cent and 15.4 per cent of shops were empty in the third quarter, up from 6.8 per cent to 12.8 per cent in the first quarter, according to Midland IC&I. Vacancy is set to increase slightly in the first quarter of 2025, to between 9 per cent and 16 per cent, the commercial property agency said.
With rents down as much as 65 per cent from historical highs in 2019, numerous American and European luxury and mid-market brands have signed expensive leases in the last three months.
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“Vacant shops present opportunities,” said Lieman Leung, director of Midland Shops. “Brands opening in Hong Kong can introduce fresh business models, innovative thinking, and more creative products to the local market.”
Seoul-based sportswear brand Fila, for example, leased several shops in Hollywood Plaza in Mong Kok with an aggregate area of 5,643 sq ft for HK$1.8 million (US$232,000). Panerai, a luxury watch brand from Italy, agreed to pay HK$1.7 million a month for a 9,182 sq ft shop in Pacific Star Building in Tsim Sha Tsui. American fashion retailer Abercrombie & Fitch snapped up a 7,000 sq ft space in Hysan Place in Causeway Bay for HK$1.5 million a month. And Spanish fashion brand Mango will occupy a 19,071 sq ft shop on Queen’s Road in Central for HK$1.25 million a month.
Italian luxury brand Armani snapped up another shop on Queen’s Road in Central, with 6,000 sq ft of space, for HK$800,000 a month. In New Town Plaza in Sha Tin, Hollister, another American fashion retailer, chose a 10,000 sq ft space for HK$1 million a month. And Switzerland-based Swatch group will pay HK$400,000 a month for a 1,000 sq ft shop in Mira Place in Tsim Sha Tsui.
“Leasing inquiries have maintained momentum, particularly in top-tier locations within prime shopping areas where leasing demand remains robust,” said Jeannette Chan, senior director of retail at JLL in Hong Kong. “However, retailers continue to exercise cost-consciousness in light of the subdued retail sales performance observed in recent months.”
In the first eight months of the year, retail sales in the city dropped 7.7 per cent to about HK$250 billion compared to the same period in 2023, according to official data.
This year about 1.2 million sq ft of new prime retail space will hit the market, with three-fourths of that coming in the fourth quarter, Chan said. In 2025, new prime retail supply will moderate to about 700,000 sq ft.
“The anticipated new supply is expected to have a limited impact on rental prices, particularly for existing mature and well-managed prime shopping centres in the overall Hong Kong market,” Chan said. “Leasing volume is projected to improve, driven by the gradual absorption of new retail space, bolstered by improving consumer sentiment spurred by rate cuts and increased interest from overseas brands entering the Hong Kong market.”
One of the new prime retail spaces is Hopewell Mall in Wan Chai, which will have a soft opening next month. It will extend the Hopewell Cluster’s retail area to more than 780,000 sq ft, and more than 90 per cent will be occupied when it opens, the Hopewell Group said in a statement.
“This high leasing rate indicates a significant potential for growth and success among various brands in the area,” a Hopewell spokesman said.
Tenants will include the flagship store of Japanese home goods retailer Nitori, which will occupy 50,000 sq ft. Other tenants are Toys R Us, supermarket Food le Parc and pet store The Barkyard.
In terms of rents, opinions are split about any potential increments and which district is likely to see the most improvement.
Hong Kong Island, particularly Central, is likely to benefit from recent positive developments such as the reduction in interest rates, a stimulus package launched by Beijing as well as improving stock market performance, according to Cushman & Wakefield.
“We have seen retailers willing to commit to this rental level in Central, so we can see rental recovery in Central over the next few quarters,” said John Siu, managing director at Cushman in Hong Kong.
On the other hand, Leung of Midland believes that “high-street vacancies will limit the potential upwards trend of prices of shops in Hong Kong Island”.
More from South China Morning Post:
- Japanese firms snap up retail spaces in Hong Kong, making the most of city’s low rents and residents’ fondness for country’s brands
- Discounted rents help mainland Chinese retailers snag prime spots in Hong Kong
- Bakehouse doubles outlets, adds 50% staff as its egg tarts beat Hong Kong’s retail gloom
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