Hysan Development , the largest landlord in Causeway Bay, is cautious on Hong Kong’s retail and office markets, saying a slower-than-anticipated growth in sales and an impending office glut is clouding market outlook. The market has become optimistic following the reopening of the border with the mainland, but the increased footfall has not resulted in sales rebounding to pre-social unrest levels, Hysan chairman Irene Lee said at a post-results briefing on Friday. Hysan’s underlying profit fell 8.6 per cent to HK$2.13 billion (US$271.4 million) in 2022, according to a filing to the Hong Kong stock exchange. The company said it would pay an unchanged second interim dividend of 117 HK cents per share. “That is because first, the footfall is not as high as before. Second, consumption mode and desires might have adjusted,” Lee said. “My feeling is that the view can be more certain midyear.” A large amount of new office supply is weighing on Hong Kong’s office market. Last year, more than 4 million sq ft of grade A space came on to the market, pushing the vacancy rate to 14.7 per cent, the highest since 2008, Colliers said in a report last month. This year, the property consultancy expects another 3.2 million sq ft to be available. “With the uncertainty of the overall world economy, rising interest rates, and the Covid-19 situation, it has brought some pressure on the office [market],” said Ricky Lui, Hysan’s chief operating officer. “At the same time, there will be some more new supply in the market, so the office [market] will be facing some challenges this year.” “Can rents return to past [levels]? It remains to be seen,” Lee added. In December, Hysan said it would set aside HK$2 billion to upgrade its HK$90 billion Lee Gardens portfolio in phases by 2026, to turn it into a one-stop luxury shopping destination. The Lee Gardens area includes Hysan Place, Lee Garden One, Two, Three, Five, Six as well as the Caroline Hill Road project. Hysan said top luxury brands like Cartier, Chanel, Dior, Hermes and Louis Vuitton plan to open 10,000 sq ft plus flagship stores in Lee Gardens. Hysan earmarks US$256 million to upgrade Lee Gardens into ‘home of luxury’ “The world was impacted by Covid-19, in its third year, and by macroeconomic factors that included geopolitical tensions, war, inflation, interest rate hikes, supply chain disruption, energy and food crisis,” Lee said in the filing. “Hong Kong was not immune to external volatility. The travel restrictions and other Covid-19 measures further dampened Hong Kong economic activity in 2022.” Morgan Stanley said in a report on February 8 that retail sales in February and March could grow by 31 per cent and 33 per cent, respectively, because of a low base amid the fifth wave of lockdowns during 2022. The bank noted the removal of all travel restrictions and quotas for mainland China visitors to Hong Kong should drive an uptick in tourist arrivals. It raised its retail sales forecast to 15 per cent for the year, from 9 per cent previously, given the earlier than expected border opening.