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Hong Kong’s already battered retail sector experienced another testing year in 2020 as travel restrictions brought inbound tourism to a complete halt. Total retail sales fell by 25.3% y-o-y in the first eleven months of 2020, with the full year decline set to be the largest since records began.

Tourist-oriented goods suffered the biggest hit, with sales of watches and jewellery, apparel and cosmetics falling by 55.1%, 42.7% and 50.7%, respectively, over the first eleven months of the year. Several international fashion and luxury brands including J Crew, Victoria’s Secret and Folli Follie left Hong Kong permanently in 2020, while others downsized substantially. More than 20 foreign retailers have withdrawn from the city since mid-2019, vacating 70 separate premises spanning over 330,000 sq. ft. of space.

While some foreign retailers opted to exit, selected overseas brands capitalised on lower rents and higher space availability to establish a presence in the city. Between June 2019 and December 2020, more than 50 new international brands opened stores in the city, leasing over 60 premises with more than 231,000 sq. ft. of space. Japanese retailers have been particularly active, led by Don Don Donki, which has opened six supermarkets over the past 18 months.

F&B has traditionally been resilient to economic downturns, but mandatory social distancing measures and limited operating hours weighed heavily on this category in 2020. Total restaurant receipts fell by 30.8% y-o-y in the first three quarters of the year, the sharpest decline on record.

Retail leasing demand was extremely thin over the course of 2020. Despite retail landlords’ willingness to lower rents, high street shop vacancy climbed substantially over the course of the year, with Central, Causeway Bay, Tsim Sha Tsui and Mong Kok all reporting levels of over 15%.

Overall street shop rents in the four core districts fell by an average of 27.2% in 2020. Shopping centre face rents declined by a lesser margin, falling by 5.6% during the year, as landlords offered incentives and/or marketing support to boost footfall. Neighbourhood malls performed comparatively well, thanks to strong demand for daily necessities and stay-at-home essentials.

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Low consumption demand will continue to weigh on retail sales in 2021, with prospects of a recovery dependent upon the eradication of the local pandemic and the resumption of cross-border travel.

The first few months of 2021 are likely to see additional shop closures as the fourth wave of the local pandemic continues. F&B and other lifestyle retailers will be most impacted as social distancing measures and forced closures limit capacity and operating hours. Unemployment in the retail, food and hospitality sectors will rise further from the 10.1% registered in November 2020, which together with the construction sector is the highest amongst all industries.

Sources of leasing demand will include supermarkets selling daily necessities, backed by solid domestic consumption for such items. Social service providers such as elderly homes and medical clinics are also likely to expand. With these trades typically found in and around residential clusters, space in neighbourhood retail premises will remain keenly sought after. Upmarket grocery shops and medical centres may also capitalise on lower rents to add to their footprint in prime locations.

A lack of clarity about the resumption of inbound tourism will ensure retailers selling discretionary items remain in wait-and-see mode. Luxury brands and general fashion retailers are unlikely to expand until they see firm signs of a sales recovery, both globally and in Hong Kong.

Other key trends will include the continued growth of e-commerce, which will compete with brick-and-mortar sales and compel retailers to invest more in logistics, rather than in storefronts. With vacancy in core shopping districts set to remain higher for longer, landlords of bigger premises may need to consider subdividing units to attract tenants.

Shopping centre supply will remain limited, with just 1.1 million sq. ft. of new space scheduled for completion in 2021. The rental decline for high street shops in core shopping districts is forecasted to be milder than that witnessed in 2020, with a fall of 10%-15% expected. Should this decline materialise, average rents would stand 40% below mid-2019 levels.

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Hong Kong SAR Real Estate Market Outlook 2021

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Henry Chin
金緯 博士
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