Even though retail sales are increasing, stores continue to shut down, but some industries are experiencing rapid leasing activity. Simultaneously, both the number of tourists and the unemployment rate are going up.
CBRE suggests that Hong Kong's retail sector faces an uncertain future in the short term. While the economy strengthens, household incomes rise, and tourism rebounds, increasing joblessness could negatively impact consumer spending.
Currently, the market presents both encouraging and discouraging developments," noted Lawrence Wan, a senior director and head of advisory and transaction services for retail at the real estate consulting firm CBRE Hong Kong. "Retail spaces continue to...closing down, yet simultaneously, we're observing a rapid pace of leasing activity, particularly driven by the food and beverage sector launching new eateries."
Official figures indicate that retail sales in the city grew by 2.4% year-on-year to reach HK$31.3 billion (US$3.99 billion) in May, putting an end to a 14-month period of decline. This increase is largely due to the rise in tourist numbers during mainland China's Labour Day "golden week" holiday.
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Government figures reveal that the city's GDP exceeded expectations, rising by 3.1% in the year's initial quarter. Furthermore, tourist visits in May surged by 20% year-on-year, surpassing 4 million. Over the first five months, Hong Kong welcomed over 20 million tourists, a 12% increase compared to the previous year.
The median income for households rose approximately 4 percent, reaching HK$54,000, during the year ending in March.
However, government statistics revealed that the city's unemployment rate climbed to 3.5 percent between March and May, the highest it has been in two and a half years. This is an increase from the 3.4 percent recorded between February and April. Furthermore, approximately one-fourth of employers in Hong Kong were considering reducing their workforce in the third quarter, suggesting that further job losses were anticipated, according to arecent survey.
Wan stated that Hong Kong is experiencing an increase in tourism alongside declining interest rates. "The financial market is improving, yet simultaneously, there's worry about the unstable economy. These conflicting indicators are truly disrupting the retail sector. It's impossible to predict whether the outcome will be positive or negative, as it's fluctuating constantly."
CBRE's analysis indicates that main street rental costs are down 34% compared to 2019 and a substantial 57% from their peak in 2014. Nevertheless, CBRE's figures also reveal a recovery of 18% since the lowest point in mid-2022, with a further increase of 1.9% so far this year.
According to CBRE, the vacancy rate dropped by 0.7 percentage points to 7.1% between December and June, driven by increased demand from food and beverage businesses, jewelry stores, and pharmacies.
F&B groups leased a total of 134,000 sq ft, the highest since 2009, while a few jewellery stores added space. Requirements from pharmacies also picked up over the quarter, partly fuelled by double-digit growth in visitor arrivals.
"The Hong Kong retail market is experiencing a reshuffling of tenants," said John Siu, managing director for Cushman & Wakefield in Hong Kong.
Retail businesses and food and beverage providers that highlight local culture, provide distinctive experiences, and deliver superior services and goods are more likely to attract tourists and thrive financially. Conversely, some long-standing retailers will be pushed out of the market because they haven't adjusted to evolving consumer preferences.
Cushman said high street retail rents and F&B rents would decline by 1 to 3 per cent through 2025.
Significant transformations within the city'stenant mix included the likes of luxury cosmetics retailer DFS leaving its premises in the Moko shopping centre in Mong Kok and being replaced in May by 2nd Street, which sells second-hand goods, Cushman said. Meanwhile, the Grand Kornhill Cinema in Kornhill Plaza South in Quarry Bay closed its doors in May after 37 years of operation by the MCL cinema chain. It was set to be replaced by edutainment play park Kiztopia, Cushman said.
CBRE's Wan said that despite the higher number of jobless residents in the city, the impact on consumption was unlikely to be significant.
"It is more about affecting the market sentiment," he said. "There are various factors affecting consumption."
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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.
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