Tourist visits are projected to rebound by 150% to around 9.8 million in 2021.
Retail rents in Hong Kong will likely bottom out in the first half of 2021 following a massive decline in 2020, as the recovery in tourism will reinvigorate in the city’s retail market, a report from Savills revealed.
Retail sales fell 27% YoY form January to October, and retail unemployment hit 9.3% in September. With little capex for expansion retailers are sitting tight until leases are due, as landlords are not accepting surrenders, when many are opting to hand back the keys.
However, food and beverage (F&B) stores continued to take up space as landlords are keen to sign up crowd-pulling concepts, often local, to support footfall in major malls. Beyond the sector, activity levels are very low and the market remains frozen with only a handful of deals concluded in Q4.
Thus, landlords are now mostly reconciled to market conditions and we hear of "turnover-only" deals for 12-month periods, the report said.
With key shopping districts and most malls facing sharply higher vacancies, short-term tenancies of six months or so have been on the rise.
Their typical tenants include sellers of masks, red packets, groceries and frozen meats, concepts which work best in densely populated residential areas. On the street, landlords have also been opening their doors to local restaurants.
Amidst the fourth wave of the pandemic and a sluggish leasing market, rental values also tumbled in Q4, with both prime street shop rents and base rents of major shopping centres falling 5.9% QoQ. Prime retail streets such as Queen’s Road Central in Central and Percival Street in Causeway Bay have even seen vacancy as high as 20% in recent months.
Nevertheless, the tourism market is expected to recover gradually over the next three years when the global pandemic passes. With an extremely low base in 2020, visitor numbers are projected to rebound by 150% in 2021 to around 9.8 million.
Based on data during the post-SARS and post-Global Financial Crisis periods, this will be followed by a 123% rise in 2022 to around 22 million, and then 92% to 42 million when the overnight visitor and long-haul markets start to pick up in earnest.
With the return of tourists and their shopping spending, retail sales is tipped to grow 5.5-15.1% from 2021 to 2023. FocusEconomics also expected that the local labour market will improve gradually once the economy recovers from the damage of the coronavirus.
Savills expects a further drop in prime street shop and shopping centre rents by 2% to 5% in 2021. With the recovery of the overnight/long-haul visitor market and their shopping spending, prime street shop rents may bounce back by 7%-10% and 20% in 2022 and 2023, respectively, whilst shopping centres will recover by 5%-10% per annum over the same period.
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