Hong Kong Retail Sales Plummet, Highlighting Need for Rent Reductions

Retail Sector Faces Dismal Outlook

The outlook for Hong Kong's retail sector remains bleak through to early next year, an industry representative has warned while calling for rental reductions of at least 30%. Hong Kong Retail Management Association chairwoman Annie Tse Yau On-yee shared this projection on Monday after figures showed the retail sales volume shrank by 11.8% year on year to HK$29.1 billion (US$3.7 billion) in July, marking a contraction for the fifth consecutive month.

Changing Consumption Patterns

This decline follows 15 months of continuous growth after the coronavirus pandemic, with authorities attributing the slowdown to changes in consumption patterns, the strong Hong Kong dollar, and a rise in outbound summer travel.

“The trend will continue to the end of the year or even early next year. The situation may improve slightly next March or April because the base figure in 2024 is low enough,” she told a radio programme.

Minimal Impact from Inbound Tourists

Tse noted that the recent increase in the number of inbound travelers had little impact on alleviating retail woes, as the anticipated boost during the Labour Day “golden week” holiday and summer season was minimal. “Consumption patterns have changed. Previously, retail sales were mainly driven by mainland tourists, but now most of them come here for sightseeing and don’t spend much,” she said.

Need for Rent Adjustments

“A 30% rent reduction is necessary to help the industry. Some members got a 5 to 10% cut, which is better than nothing but does not reflect market realities,” Tse argued.

However, Lau Chun-kong, managing director of Colliers Hong Kong, mentioned that the rental market had been “flexible” regarding rent adjustments and lease terms. “It’s overly simplistic to say rent was the only factor. It usually accounts for a single-digit percentage of total sales; for some, it could go up to 20%,” he explained.

Vacancy Rates and Closures

Lau also pointed out that vacancy rates in shopping centers are typically lower than those of street-level shops, which often lack landlords with professional expertise. Reports indicate that at least a dozen restaurant chains and independent eateries have recently closed, according to a review by the Post.