…Continued from part 1

However, what is the underlying reason that sales per capita in Hong Kong are so much higher than in Singapore? Well, let’s recall that the market for the retail scene is not limited only to residents of the city. Short-term visitors, or tourists, also make up a significant consumer base of a retail market, especially in international hubs such as Hong Kong and Singapore. If we assume that residents in Hong Kong and Singapore spend comparable amounts of money per capita on retail goods and F&B, then we can hypothesize that tourism is the major differentiating factor in sales and rental levels between Hong Kong and Singapore.

Therefore, let’s look into the tourism numbers for both cities. From 2017 to 2019, tourism arrivals in Hong Kong were consistently over three times the levels seen in Singapore (Figure 4). With an overwhelmingly larger base of tourist consumers, Hong Kong became an extremely attractive destination for retailers looking to tap into the vast tourism market and growing spending power of its tourists, especially of those coming from mainland China. In turn, the influx of retailer interest in Hong Kong drove explosive growth in its retail rents, much beyond the retail rent levels in Singapore. However, Hong Kong’s tourism arrivals began to decline in the second half of 2019 and in 2020 due to numerous factors including local social unrest and the global outbreak of COVID-19. As the gap in tourism arrivals between Hong Kong and Singapore began to decline in the second half of 2019, so did the gap in rents between Central and Orchard, though the decline in the rental gap has been much milder than the more rapid tourism gap decline (Figure 5).

Figure 4: Tourism arrivals

Source: Hong Kong Tourism Board, Jun 2020; Singapore Tourism Board, Jun 2020

Figure 5: Tourism difference vs rent difference

Source: JLL Research, 2Q20; Hong Kong Tourism Board, Jun 2020;
Singapore Tourism Board, Jun 2020

Hence, it is reasonable to infer that the large number of tourism arrivals in Hong Kong was a major driving factor of its high retail rents, relative to Singapore. Nevertheless, the global pandemic and corresponding travel restrictions have led to drastic declines in tourism numbers in both Hong Kong and Singapore, negatively impacting their retail markets. From the standpoint of local residents, social distancing measures and cautious consumer sentiment have further weighed down on the retail markets. As retailers and F&B businesses struggle to remain profitable, retail landlords have offered concessions and even reduced rents to retain and attract tenants.

But looking forward into the long term, businesses will have to adapt to an ever changing retail operating environment given that international travel and tourism is expected to remain below pre-pandemic levels over the next few years (1), and consumers are increasingly becoming accustomed to doing their shopping and food ordering through the internet especially in the post-pandemic world. In Hong Kong, HKTV Mall reported sales of HKD482 million in Feb 2020, compared with HKD179 million in Feb 2019, a year-over-year increase of 169% (2). In Singapore, the proportion of retail sales being made through the internet increased swiftly during the months since the pandemic began, particularly for computer & telecommunications equipment and furniture & household equipment (Figure 6). Notably, the proportion of sales made online for supermarkets & hypermarkets remained at close to pre-pandemic levels.

Figure 6: Online retail sales proportion in Singapore

Source: Singapore Department of Statistics, Jun 2020

So, as consumers increasingly turn to e-commerce to fulfil their retail needs, it would also serve both occupiers and owners of physical retail space well to adopt and leverage greater use of technology to draw footfall back into brick-and-mortar locations, whether that be in the form of omni-channel retail strategies, utilizing technologies such as virtual and augmented technology, or offering unique experiential retailing. Whether in Hong Kong or in Singapore, or anywhere else in the world, such innovative strategies have never been more relevant in not only the post-pandemic world, but also in Industry 4.0.

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