What: A US asset management company foresees that Hong Kong will recover in the next 5 years.

Why it is important: Hong Kong has many strategic assets as a shopping destination which explains why there is still a lot of room for clever retailers there.

Hong Kong's prime retail rents are expected to grow by at least 3% annually over the next five years, the second-highest increase in the Asia-Pacific region, according to a PGIM Real Estate report. This growth, led only by Tokyo's projected 4% increase, is anticipated due to a rebound in tourism and steady economic growth in Hong Kong. In the first nine months of the year, retail sales in Hong Kong surged by 18.6%, and tourist arrivals skyrocketed, with a significant portion coming from mainland China and a growing number from Southeast Asia.

Despite this growth, the recovery in tourist spending lags behind arrivals, with spending in the first half of the year only at 55% and 18% of 2018 levels for overnight and same-day visitors, respectively. This lag contributes to Hong Kong's main shopping districts falling in global retail rent rankings. Tsim Sha Tsui remains the most expensive retail destination in Asia-Pacific but has dropped to third globally.

The report suggests that the recovery in mainland China's economy will positively impact Hong Kong's retail sector. However, risks such as a potential slowdown in China's economy and geopolitical tensions could impede the sector's growth. The strength of the US dollar, to which the Hong Kong dollar is pegged, also affects tourist spending patterns.

Hong Kong retail rents to see one of the highest increases in Asia over next five years