The retail market in Hong Kong has experienced a slower recovery than initially projected, according to Savills in its Market in Minutes – Hong Kong Retail Leasing report for Q2/2023.
The retail market in Hong Kong has experienced a slower recovery than initially projected, according to Savills in its Market in Minutes – Hong Kong Retail Leasing report for Q2/2023.
Departing locals outnumbered incoming Mainland tourists
10.1 million visitors (7.9 million from Mainland China) have arrived in Hong Kong over the past five months since border reopened, representing around 34% of pre-COVID levels, the recent Easter Holidays (4 to 8 April) were disappointing for many retailers and F&B outlets, with departing Hongkongers (1.58 millions) outnumbered incoming Mainland tourists (270 thousands). Although the Labour Day Golden Week fared better, with 620,000 Mainland tourists coming to town, around 50% of 2019 levels over the same period, luxury retailers have seen the most success, with sales reaching 70%-80% of pre-COVID levels during the Labour Day Golden Week. Some F&B operators also welcomed waves of Mainland tourists, given they were recommended on Xiaohongshu. However, other retail sectors have remained largely muted as mainland tourists spent rest of their time touring around for more local spots rather than shopping in traditional areas.
Rents continued to increase in Q2/2023
Although the optimism around the retail market quickly diminished afterwards with stumbling stock market and weakening economies, some retailers were taking advantages of relatively low rental levels to expands. As such, prime street shops and major shopping centre rents increased by 1.4% and 0.9% respectively in Q2/2023.
Tsim Sha Tsui benefited from the evolving visitation patterns of Mainland tourists
The changing visitation habits of Mainland tourists, including higher utilization rate of the high speed railway, meant Tsim Sha Tsui was the main beneficiary with a blend of sightseeing, shopping and dining places fulfilling most of these tourists’ needs. Mong Kok lost out as the trade profile no longer warrants it as a recognized tourist spot. While this new wave of Mainland tourists were more reluctant to cross the harbour to visit traditional tourist places such as Causeway Bay, Central still held up well with continuous local support as the CBD of Hong Kong. It is therefore no coincident that Sai Yeung Choi Street South in Mong Kok has the highest street shop vacancy (36%) among four main prime streets among Central, Causeway Bay, Tsim Sha Tsui and Mong Kok.
Mainland financial institutions took up the retail spaces
Mainland financial institutions are increasingly leasing prime retail spaces for their insurance and wealth management centres, reflecting a structural shift in Mainland visitor profiles and spending patterns. This trend has seen CITIC Securities, FUTU Securities, and Anxin Trust taking up prestigious locations that were previously reserved for luxury brands. The above indicated the structural shift of Mainland visitor profile and spending pattern in the most recent market recovery.
Moderate rental growth in the second half of the year
The pace of further recovery of the retail sector will depend on factors such as Mainland and local economic recovery, the return of high-spending business/vacation tourists, availability of flights and hotel rooms, improving quality and quantity of tourist attractions and sustaining local spending. While a medium to long term recovery of the retail segment is still optimistic as the above factors gradually materialized, caution is being taken over the next 3 to 6 months due to various market headwinds, with a more modest rebound of retail rents likely to be seen by 3% to 5% over the period.
Mr. Jack Tong, Director, Research & Consultancy of Savills commented, “Retailers who committed spaces during the quarter were mainly testing the market. Meanwhile, many retailers were still cautious in making their moves, in particular into core retail areas, before they can see concrete evidence of a full retail market recovery.”
Mr. Barrie Chan, Senior Director, Retail of Savills said, “The ability of retail landlords to create points of differences for new shopping centres, with as many as 10 million square feet of new shopping centres being completed over the next decade, will be crucial for their success.”