Over the past few years, Hong Kong’s retail sector has faced significant disruptions. As we enter the post-pandemic era, it is crucial for the market to embrace change and seek out new opportunities. Aiming to equip business leaders and sector stakeholders with the insights they need to proactively prepare for driving the future of retail, we have launched our latest white paper: “Reset, Reshape, and Rethink: Finding Opportunity in Change“.

The report identifies six key challenges that the city’s retail market is facing:

1. Changing tourist shopping habits: With a strong Hong Kong dollar exchange rate and tourist shopping habits, the share of tourist spending in total retail sales has declined. Mainland Chinese tourists, in particular, have shifted their preference towards local and community-based tourism and F&B, reducing their share of shopping spending.

Figure 1: Retail sale composites (local vs tourist – 1H09-1H23)

Source: Hong Kong Tourism Board, Census and Statistics Department, JLL

2. Leakage of domestic consumption: As outbound travel becomes more incentivised, the inbound-outbound ratio is expected to rise further, leading to further leakage of domestic consumption in Hong Kong.

3. Keen competition from other tourist destinations: Our consumer survey results indicate that a significant portion of respondents plan to save money for outbound travel, particularly to mainland China. Additionally, the conversion of Hainan into a free trade port by 2025 will intensify competition.

4. Increasing new retail space supply: Hong Kong’s retail market is facing a surge in new prime shopping space supply. The average annual supply expected between 2023 and 2027 will likely be almost double the 15-year historical average, posing a challenge for shopping centre landlords.

5. The rise of online sales: The pandemic has expedited the shift to e-commerce. While Hong Kong’s online sales share remains modest at 7.1%, compared to mainland China’s approximately 30%, this trend is expected to continue. Retailers and landlords must adapt to this shift in consumer behaviour.

Figure 2: Will you shift more towards online shopping in future?

Source: JLL

6. Soaring rents: High rents are a primary concern for retail operators. These soaring rents hinder creativity and limit the entry of experiential retailers and new concept stores.

Figure 3: Key challenges for the retail business

Source: JLL

To address these challenges and embrace the changes as opportunities, shopping centre landlords should consider introducing unique experiential retail tenants, diversifying the tenant-and-trade mix and making malls more than just shopping destinations.

Landlords should also forge strategic partnerships with forward-thinking tenants willing to invest in innovative concepts. Collaborating with such tenants through flexible leasing arrangements will inject new concepts, unique choices and experiences into malls.

According to our survey findings, consumer preferences indicate a desire for more diverse and unique retail offerings with better customer service that will incentivise them to spend more in Hong Kong. Examples are more mom-and-pop stores, unique cuisine restaurants and improved consumer service. On top of bringing in new brands and types of tenants, shopping centre landlords can offer comprehensive support and consultancy services to tenants in areas such as shop front design and product display to ensure the quality and uniqueness of their offerings within their portfolio. Meanwhile, chain stores should develop diversified business lines and store concepts for niche marketing.

All in all, reshaping Hong Kong’s retail market requires collaboration among landlords, operators, stakeholders, and influencers, supported by appropriate government policies. The retail sector’s recovery hinges on the city’s unique strengths and the unlocking of synergies with other industries, such as entertainment. By maintaining relatively affordable retail rentals and providing the right-size shops, the market can enable experiential retailing and encourage the development of new concepts. Despite the challenges, we firmly believe that Hong Kong’s retail landscape will regain its prestige on the global stage in the near future.

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