Hong Kong’s retail rents are predicted to remain below their previous highs for the next five years due to several challenges, per a report by JLL. To accelerate the recovery and regain competitiveness, landlords and retailers must collaborate to transform the retail space and offer more diverse and distinctive retail experiences.
The JLL report surveyed 720 consumers and 108 retail operators in 2022 and 2023, revealing the challenges confronting Hong Kong’s retail market.
Challenges to Hong Kong’s retail landscape, at a glance
A global economic slowdown and a strong Hong Kong dollar exchange rate are impacting tourist spending in Hong Kong, which is shifting toward more community-based tourism and F&B versus shopping.
Hong Kong today also faces stiff competition from nearby destinations such as Japan, among the most popular countries to visit for Hongkongers, and Hainan, which is poised to heighten retail competition, particularly in the luxury goods sector—for both tourist and domestic spending. Respondents said they intend to reduce retail spending in Hong Kong in order to save money for outbound travel.
While an estimated 6.6 million square feet of new prime shopping centre supply is projected to be introduced between 2023 and 2027, approximately 44 percent of the operators cited soaring rents as their primary challenge. It’s worth noting that the average unit rent of prime shopping centres in Hong Kong is higher than the second and third most expensive cities in the Asia Pacific region (Guangzhou and Shanghai) by 92.3 percent and 175.7 percent respectively; on the high street, Hong Kong rents exceed the second and third most expensive cities, Seoul and Tokyo, by 32.7 percent and 120.1 percent, respectively.
Reimagine experiential retailing
Those challenges, coupled with the rise of online sales, demand that landlords and retailers venture into less traditional business models. The objective should be to captivate shoppers and provide unique experiences that cannot easily be replicated by online shopping. This approach is crucial in creating relevance for Hong Kong’s physical retail spaces.
According to Oliver Tong, head of retail at JLL in Hong Kong, while the reopening of borders has alleviated significant challenges for the city’s retail market, there have been notable shifts in consumer behaviour and shopping patterns.
“At the same time, the operational models and tenant mix in shopping malls of nearby cities have improved significantly, intensifying the competition that Hong Kong is facing,” Tong notes.
“Shopping malls are no longer just places for shopping. Our figures show that about 20 percent to 25 percent of new lettings in Shanghai’s shopping malls are experiential tenants in the first three quarters of this year. In Beijing, about 35 percent of shopping mall new lettings are experiential tenants in the first half of 2023, 17 percentage points more than that during the same period in 2022.
Shopping centre landlords in Hong Kong could introduce unique experiential retail tenants as a catalyst for a sales rebound in their shopping malls,” Tong added.
Rethink the variety of retail offerings
In Hong Kong’s retail market, consumers prioritise mom-and-pop stores (51 percent), unique cuisine restaurants (42 percent), and improved customer service (41 percent), indicating their preference for a fresh shopping experience.
Says Cathie Chung, senior director of research at JLL: “Shopping centre landlords can attract consumers by introducing new brands and types of retailers, while chain stores should develop diversified business lines.
Furthermore, shopping centre landlords can offer one-stop services to support their tenants in shop front design, product display and various consultancy services to ensure the quality of their tenants’ offering and uniqueness.”