Hong Kong’s retail market faces ‘slow recovery’ as surging Covid-19 cases rain on the parade of city’s open border

A recent uptick in enquiries from potential shop tenants betting on a flood of mainland visitors returning will be short-lived, says secretary general of commerce group
Retail landlords also face a surge in supply as an estimated 3.9 million square feet of shopping mall space is set to open this year, according to Colliers

Hong Kong property

Lam Ka-sing

Published: 11:00am, 24 Jan 2023

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The recovery of Hong Kong’s retail market is likely to be slow and uncertain, as surging Covid-19 infections in mainland China and a huge supply glut limit any boost from the reopening of the border, according to industry leaders.

A recent uptick in the number of enquiries from potential shop tenants betting on a flood of mainland visitors returning will be short-lived, said John Lee Koon-lam, secretary general of the Hong Kong Industry and Commerce Elite Association, which has close to 200 businessmen and politicians as members.

“Because of the uncertain outlook of the pandemic and high infection numbers in the mainland, cross-border economic activity will be hindered,” said Lee. “Luxury retail shops may see sales remaining at a low level as the three years of lockdown has changed the shopping behaviour of mainlanders.”

Lee pointed to the vacancy levels of high street shops and the fact most tenants are still merely asking rather than committing. However, things could improve by the middle of this year if new Covid-19 drugs emerged that led to a full border reopening, he said.

The vacancy rates in the popular shopping districts of Central, Causeway Bay and Mong Kok stood at 12.9 per cent, 5.8 per cent and 8.9 per cent in December, significantly higher than their pre-pandemic levels.

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The holiday week could spell even worse news for the city’s retailers, according to Annie Tse, chairwoman of the Hong Kong Retail Management Association, which has 9,000 members.

“The situation in January is still not optimistic. Lunar New Year is a long holiday, and there is likely to be more outbound travel,” said Tse. “As the border has reopened, there may be more locals going back to the mainland for the festival visiting relatives. We expect the first half of 2023 to still be in a very bad situation.”

Some of the association’s members expect the situation to be even worse than in 2022 because of the potential for more coronavirus outbreaks, labour shortages and the reluctance of shoppers to return, she added.

In November, retail sales in Hong Kong amounted to HK$29.5 billion, down 4.2 per cent from October, according to official data. The figure marked the largest monthly drop since March, when sales fell 13.8 per cent.

Any significant improvement in sales year on year is because of the low base in early 2022 when the fifth wave of coronavirus was sweeping Hong Kong, she added.

“Some landlords could not wait to propose long leases and raise rents upon the announcement of the border reopening,” she said. She asked for their understanding, explaining to them that the border reopening did not mean business would return to normal immediately.

Apart from the uncertain sales recovery, retail landlords face the challenge of a surge in supply. In terms of new shopping mall space, 2023 will register the largest increase in a single year for two decades, at 3.9 million square feet, according to Colliers.

A large chunk of this will come from the retail portion of Nan Fung Development’s Airside commercial development in Kai Tak, which is expected to provide some 700,000 sq ft of gross floor area.

Shopping centre landlords are expected to run loyalty programmes, promotions and festive events to attract footfall.

For example, six of Sun Hung Kai Properties’ shopping centres in Hong Kong joined hands for the first time with its Parc Central mall in Tianhe, Guanzhou, to launch cross-border spending rewards, said Judy Chow, general manager of leasing at Sun Hung Kai Real Estate Agency.

The number of shop, office and industrial property deals nosedived 36 per cent last year to just 4,431, the second-lowest since records began in 1996, according to Ricacorp Properties. Demand was hobbled by Covid-19 outbreaks, the slumping stock market and rising interest rates.