Hong Kong retail rental growth expected to top Asia-Pacific markets on return of mainland Chinese tourists

Hong Kong is expected to be the best-performing retail rental market in Asia-Pacific this year, according to CBRE
Retail rents could recover by 5 per cent this year, Morgan Stanley says

Hong Kong property

Cheryl Arcibal

Published: 8:30am, 9 Feb 2023

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Hong Kong’s high-street retailers are likely to see rents rise by as much as 10 per cent this year, surpassing other markets in Asia-Pacific as a surge in mainland Chinese tourists boosts consumption in the city, according to CBRE.

“The imminent return of mainland Chinese tourists is expected to inject new vitality into the Hong Kong retail market,” the property consultancy said in its latest report. “The city is forecast to be the best-performing market in Asia-Pacific this year, with high street shop rents projected to rebound by 5 to 10 per cent in 2023.”

Out of the 19 markets tracked in the study, 10 have been predicted to see rental growth resume this year, while the rest are likely to see rents remain unchanged or lowered.

02:23

Travellers praise restriction-free movement as last closed Hong Kong-mainland China borders reopen

Beijing abruptly scrapped its strict zero-Covid policies late last year, paving the way for the world’s second-largest population to travel the world again. To boost tourist interest, Hong Kong has launched an aggressive global promotional drive. Titled “Hello Hong Kong”, the first phase will cost about HK$100 million (US$12.7 million) and involve spending vouchers, special events and a planned giveaway of 700,000 airline tickets.

“We see retail rents recovering by 5 per cent [this year],” investment bank Morgan Stanley wrote in a separate note recently. “We raise our expectation of retail sales growth to be +15 per cent in 2023 and visitation to reach 70 per cent of the 2018 level by December 2023.”

Hong Kong’s retail sector entered the doldrums in mid-2019, when anti-government protests broke out, causing many mainland Chinese travellers to avoid the city. Stringent pandemic restrictions in the past two years put further pressure on the industry, sending retail property rents slumping.

Shoppers in Causeway Bay on the last day of the Lunar New Year holiday. Photo: Sam Tsang

Retail property rents in Hong Kong had declined by 42 per cent since mid-2019, CBRE said late last year. Compared to the peak in 2014, when mainland Chinese demand for luxury products began to wane, rents had retreated by 62 per cent.

During boom times, mainland visitors were a major driver of tourism in Hong Kong. In 2018, Chinese tourists in the city grew 14.8 per cent to 51 million, driving total tourist arrivals to a record 65.1 million, according to government data. Retail sales that year rose 8.8 per cent to HK$485.2 billion.

The luxury retail sector has been hit particularly hard since, with Russell Street in Causeway Bay losing its crown as the world’s most expensive place to rent a shop on a per-square-foot basis, according to a report by Cushman & Wakefield in April 2021, and Tsim Sha Tsui meeting the same fate in November last year.