Hong Kong retail sales continue to experience a recession, reporting a double-digit drop in two consecutive months in May and a 6.1 per cent decrease for the first five months of this year. The prolonged downturn has led many to wonder what the future holds for the industry.
What is happening?
A government spokesman said the decline in sales was mainly due to the changes in the consumption patterns of visitors and residents, as well as the strength of the Hong Kong dollar.
Earlier this year, Hong Kong witnessed a change in consumer spending with more local residents flocking to Shenzhen for cheaper shopping and entertainment. Residents are also spending more in other overseas markets, such as Japan, South Korea and Mainland China, due to the strong Hong Kong dollar.
According to CBRE’s latest report, ‘Identifying prospects in a new era of economic growth’, overseas spending by Hong Kong residents rose by an average of 316 per cent year on year during the four quarters of 2023. The Hong Kong dollar has appreciated by 18 per cent against the Japanese yen since the beginning of last year and is now nearly 8 per cent stronger against the RMB (Chinese yuan) compared to early last year.
“Consumers are seeking new experiences,” Vivek Kaul, MD and head of retail, advisory and transaction services at CBRE Asia, told Inside Retail. “In recent years, there haven’t been many new retail experiences in Hong Kong, which is why people are travelling abroad.”
“New developments have emerged in Shenzhen, while Hong Kong hasn’t seen much retail development in the last three years. The retail consumer wants experiences, and today they have the opportunity to travel to neighbouring places for shopping.”
“F&B is surely impacted although they are still the major source of leasing demand. This is because the Chinese consumer is not travelling as much as before or has reduced travel to Hong Kong,” he added.
Reuters said the Tourism Board reported a 38.9 per cent decline in Mainland Chinese tourists last year compared to pre-Covid levels.
“Tourists account for almost 30 per cent of consumption in Hong Kong, with 80 per cent of these tourists coming from Mainland China,” Kaul said. “However, Mainland Chinese consumers are not travelling as often due to economic conditions, leading to softened consumption patterns and a drop in sales.”
Reuters reported cost-conscious Chinese tourists are now spending more for accommodation in Shenzhen and travel to Hong Kong to take sightseeing tours during the day.
“I would say the shift is temporary,” he added, suggesting that the local spending leakage may not be a permanent change but rather a reaction to the prevailing economic conditions.
Signs of recovery
While the latest spending figures have sparked concern over the slow revival of Hong Kong’s retail landscape, the expert suggested the status quo might not be as gloomy as it seems.
The Hong Kong government is rolling out initiatives to uplift consumer spending, including the further enhanced Individual Visit Scheme and the increase of duty-free allowance for luggage articles for Mainland resident visitors.
“The Hong Kong Government is playing an active role in promoting international events,” he said. “They are organising a lot of art, cultural, entertainment, and sports events which are planned for the third quarter and the fourth quarter of this year.”
“Hong Kong is still the market with the highest tourist per capita in the world, after Australia,” Kaul added. “That you can’t take away from Hong Kong, and that’s going to remain and improve.”
Meanwhile, retailers are now looking for consolidation and relocation opportunities in prime locations while rents are softening. More investments from private developers are happening, including the up and coming ‘Henderson Land Site 3’ development in Central CBD and Sun Hung Kai Properties’ International Gateway Centre in West Kowloon.
“The vacancy rate is running at low single digits in the malls, and for high streets, it’s around 6 per cent levels as of end June,” he said.
“Rents have obviously fallen, and [they have fallen] more than the fall in total retail sales, meaning margins are indeed improving from a real estate overhead point of view. If I were in retail and believed in the Hong Kong market, I would invest.”
Last month, Hongkong Land joined a US$1 billion investment plan dubbed ‘Tomorrow’s Central’ with a lineup of 10 luxury houses, including Cartier, Chanel, Hermes, Prada and Van Cleef & Arpels, banking on the city’s retail revival.
“At its peak, Hong Kong used to get 65 million tourists. We are now at around 40 million, and the government’s target is to reach about 50 million tourists by the end of the year. It’s a slow and steady process, and changes cannot happen overnight. It will take some time, but the new investments announced, such as those from Hongkong Land and developments like 11Skies, Go Park and Kai Tak Sports Park, will push the retail boundaries for consumption in Hong Kong,” Kaul said.
“If they are investing almost a billion dollars, which is no small amount, there must be something going right for Hong Kong.
“From a consumer perspective, not from a retail real estate background, I believe something new in Hong Kong’s retail scene will help create a positive story about the city.”
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