While owners of subdivided shopping malls struggle to find tenants, the outlook of the retail property market is promising amid a pick-up in retail sales.
Property consultants said retail sales entered a consolidation phase last year, pushing shop rents down 3 per cent over the year.
However, Simon Lo, a director of research and consultancy, said strong local consumption registered in the fourth quarter of last year indicated the retail market has completed the consolidation process. Retail sales are expected to rise this year.
Mr Lo forecasts an 8 per cent and 17 per cent growth in retail rentals and capital values this year.
He said: 'Local consumption has continued to be very strong. Anticipation of pay rises, accelerating inflation and rising stock prices will see the retail sector perform highly favourably this year.'
Jeannette Chan, a regional director of retail department at Jones Lang LaSalle, said retail rents in prime areas in core shopping districts would be stable this year while rents in second-tier areas would grow steadily.
The latest transactions at Russell Street in Causeway Bay and Queen's Road Central in Central have shown that retail rents are stable, according to data from Jones Lang LaSalle.
'Many tenants in prime areas are moving into the second-tier areas for affordable retail rents and this will drive up rents in second-tier areas,' Ms Chan said.
In the wake of strong retail sales in the Christmas season, she said, many international brands were planning to expand this year.
'They are looking for retail shops at Canton Road in Tsim Sha Tsui, which has limited supply,' she said. 'Retail rents in the area will have a higher growth compared with the other prime areas.'
The retail investment market was not active last year because of the rent slowdown. This year, Mr Lo expects investors to return to retail shops in the prime areas because of the limited supply.