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News Release

Hong Kong

Robust Growth in Retail Demand with Limited Supply of Space

Retail Market Continues to Transform Riding on Growth of Mainland Chinese Tourists


Hong Kong, 13 November 2012 – According to Jones Lang LaSalle’s latest white paper on the retail sector, Hong Kong will remain the top shopping destination for Mainland Chinese tourists, who will continue to drive demand for retail space over the coming years.  Meanwhile, the professional services agency also indicated that limited supply of space continues to raise significant implications for Hong Kong’s retail landscape. 

Supported by a sustained and unprecedented growth in Mainland Chinese tourist arrivals, Hong Kong’s retail sector continued to expand strongly in 2012 amidst global economic instability. In the first eight months of 2012, a total of 31.6 million Mainland Chinese tourists visited Hong Kong, already more than the 28.1 million recorded for 2011, which now accounted for over 70% of the total visitors to the city. The shopping expenditure of mainland visitors reached HKD 61.5 billion in 1H12, after reaching HKD 110.8 billion in the whole of 2011, representing some 28% of Hong Kong’s total retail sales, and about 6% of the city’s GDP. Individually, each mainland visitor spent an average of approximately HKD8,200 in Hong Kong in 2011, 30% more than visitors from other countries. This is a trend that has continued so far in 2012.
 
“The robust growth in total retail sales in recent years and tourist arrivals lead to a surge in retail property demand and rental growth in Hong Kong. As a result, Hong Kong’s retail property rentals have witnessed significant growth, with overall rents for prime shopping centres more than doubling from 2003 to 2011 while high street shops recorded an exceptional rate of growth at 180.3%,” said Tom Gaffney, Head of Retail, Hong Kong.
 
Whilst retailers in Hong Kong have experienced a slow down in sales growth since 2Q12 compared to 2011 and on many occasions retailers are subject to paying the high rental rates for retail space, Jones Lang LaSalle suggests Hong Kong will remain the prime travelling and shopping destination for Mainland Chinese tourists over the coming years due to the market’s competitive advantages. This is due firstly to the fact that Hong Kong has a broader spectrum of products than its Mainland Chinese counterparts, and international retailers tend to choose Hong Kong as the first market in the region to launch new products.
 
Secondly, Hong Kong is highly credible for mechanising genuine products for which mainland tourists are willing to pay a premium. Finally, Hong Kong enjoys a unique geographic advantage, as it is within a four-hour flight radius from the Chinese population of 1.9 billion, with a total GDP equal to USD 16 trillion.  With the completion of the Guangzhou-Shenzhen-Hong Kong Express Rail Link in 2015 and the Hong Kong-Zhuhai-Macau Bridge between 2016 and 2017, the connectivity between Hong Kong and the mainland will be even further strengthened.
 
On top of the attractions of the city’s retail market, the appreciation of the Renminbi (RMB) against the HKD has offered mainland tourists a natural discount of about 20%. This discount may grow further as some economists forecast the RMB to continue to appreciate at approximately 2.5% per annum from 2012 to 2015.
 
Jones Lang LaSalle is optimistic about the outlook of the Hong Kong retail market​. It is projected that the numbers of visitors from Mainland China will grow by between 10-15% per annum, and the high income growth in the mainland will translate into higher spending by tourists. In the event that the rumoured reduction of import tariffs on luxury items in Mainland China becomes a reality, Jones Lang LaSalle has indicated that the impact on the consumption of tourists in Hong Kong will be limited.
 
The real concern over the development of Hong Kong’s future retail market lies on the tight supply of retail space in the market, the paper by Jones Lang LaSalle reveals. In contrast to the positive levels of consumption and demand in the market, the supply of retail space in Hong Kong has been extremely tight. From 2007 to 2011, Hong Kong’s total retail sales grew by a compounded average of 13.1% per annum, while total retail space increased by a mere 3.9%, or 6.2 million sq ft. Supply of retail space from 2012 to 2016 is expected to have a limited growth, with an estimated increase of only 5.4 million sq ft.
 
“The consequence of the limited retail space supply is significant. Some retailers are unable to attain their ideal location or shop size or both and as a result, they are forced to turn to space on higher floors or pay extremely high rents to secure prime premises. Some retailers have also started to take space in emerging locations in Hong Kong as they see tourists’ footprints are expanding to beyond the core-most shopping districts,” said Marcos Chan, Head of Research, Greater Pearl River Delta.
 
A recent trend has seen retailers emerge at the boundaries of the established shopping districts, such as Wyndham Street and Wellington Street in Central and Peking Road and Haiphong Road in Tsimshatsui. In Causeway Bay, the traditional “golden triangle” is becoming the “golden circle” as retailers are pushing out to a much larger area. In addition, given the geographical proximity to the border and the transportation network, new areas such as Shatin and Yuen Long are beginning to thrive as they are preferred spots for mainland tourists to purchase mass-market goods.
 
“Looking forward, new and emerging locations including Kowloon East and West Kowloon waterfront may prove to be a possible solution to address the limited retail space in Hong Kong. On the other hand, redeveloping old buildings to accommodate more retail podiums and asset enhancement work on poorly designed arcades will also help ease some of the strain on space and enable more sophisticated retail concepts in centralised locations,” added Tom Gaffney, Head of Retail, Hong Kong.
 
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