Navigating the Future: Trends and Opportunities in Hong Kong's Retail Property Market

The Census and Statistics Department (C&SD) released the latest retail sales figures on January 2, 2025. In November 2024, the total retail sales value was provisionally estimated at HK$31.7 billion, marking a 7.3% decrease compared to November 2023. The revised estimates for October 2024 also indicated a decline of 2.8% year-on-year. Cumulatively, for the first 11 months of 2024, the total retail sales value was provisionally estimated to have decreased by 7.1% compared to the same period in 2023.

When analyzing retail sales by broad categories and comparing November 2024 with November 2023, the sales value of jewellery, watches, clocks, and valuable gifts decreased by 5.4%. This decline was followed by significant drops in other categories: electrical goods and other consumer durables not elsewhere classified saw a decrease of 18.0%, while wearing apparel fell by 7.5%. Other notable declines included commodities in department stores (-12.3%), medicines and cosmetics (-2.9%), motor vehicles and parts (-34.4%), fuels (-9.9%), footwear and related accessories (-1.7%), furniture and fixtures (-20.5%), books and stationery (-6.5%), Chinese drugs and herbs (-19.3%), and optical shops (-11.8%).

In contrast, sales in the supermarket sector increased by 3.5% in November 2024 compared to the previous year. Other categories that experienced growth included various consumer goods not elsewhere classified (+1.4%) and food, alcoholic beverages, and tobacco (+0.4%).

These shifts in consumer behavior, influenced by changing consumption patterns and a relatively strong Hong Kong dollar, are expected to continue impacting the retail sector's performance. As these changes evolve, shop vacancy rates in neighborhood consumption districts are rising in 2024, prompting a shift in retail investment towards smaller shops.

To better understand current market trends, I analyzed 835 retail shop transactions, focusing on their districts and price ranges. I selected the top two price ranges to identify sub-districts with over ten transactions and examined the relationship between these transactions, population density, and median salaries across different areas.

Out of the total transactions, 659 were under HK$20 million, accounting for 78.9% of all transactions. Four specific price ranges exceeded 100 cases: under HK$1 million (119 cases), over HK$2 million to HK$3 million (101 cases), over HK$5 million to HK$10 million (136 cases), and over HK$10 million to HK$20 million (141 cases).

For the over HK$10 million to HK$20 million category, total consideration reached approximately HK$1.6499 billion from 141 transactions. Of these, 25 transactions occurred on Hong Kong Island, 85 in Kowloon, and 31 in the New Territories. Notably, Sham Shui Po (20 transactions), Kowloon City (24), and Mongkok (19) were the leading sub-districts.

In the over HK$5 million to HK$10 million category, total dealings amounted to about HK$1.001 billion from 136 transactions, with 26 transactions from Hong Kong Island, 70 from Kowloon, and 39 from the New Territories. Sham Shui Po (14 transactions), Kowloon City (17), and Tuen Mun (11) also featured prominently in this segment.

I then combined the transaction volumes from these two price ranges and identified districts with over ten transactions, analyzing their median salaries and populations. According to 2021 data from the Census and Statistics Department, the top ten most populated districts are: Shatin (692,806), Kwun Tong (673,166), Yuen Long (668,080), Eastern (529,603), Tuen Mun (506,879), Kwai Tsing (495,798), Sai Kung (489,037), Sham Shui Po (431,090), Kowloon City (410,634), and Wong Tai Sin (406,802). Among these, Kwun Tong (27 cases), Yuen Long (23 cases), Eastern (20 cases), Tuen Mun (17 cases), Sham Shui Po (35 cases), and Kowloon City (42 cases) had over ten transactions, indicating that retail investors prefer densely populated areas for their investments.

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However, when examining median monthly household income, only four districts—Central & Western (HK$44,270), Wan Chai (HK$44,070), Eastern (HK$31,520), and Kowloon City (HK$29,940)—reported over ten transactions. This suggests that while population density is a significant factor, income levels also play a crucial role in investment decisions.

Starting December 1, 2024, Shenzhen residents regained the ability to enjoy multiple-entry visas to Hong Kong, with eligibility now extended to include non-permanent residents holding residence permits. On the first day of this new measure, over 109,000 mainland visitors arrived in Hong Kong, an increase of more than 10,000 compared to the previous Sunday. Shops in Sheung Shui reported a 10% boost in business.

The catering, retail, and tourism sectors are optimistic about the return of the multiple-entry visa, anticipating it will positively impact the industry. Although the economic environment on the mainland has shifted since the initial visa implementation, the new measures are expected to provide some level of support. While Hong Kong residents can easily shop in the mainland, mainland residents face restrictions when visiting Hong Kong. Popular shopping destinations in the mainland may appear commonplace to locals, who might be more attracted to Hong Kong’s unique offerings, such as festive decorations.

As visitor numbers to Hong Kong increase, spending is also expected to rise. However, there are concerns that the ability to visit multiple times may affect Shenzhen residents' willingness to stay overnight in Hong Kong. This concern seems exaggerated; overnight decisions primarily depend on time costs. As an international financial hub, Hong Kong typically has higher prices. If hotel rates significantly exceed those in the mainland, it may deter tourists from staying overnight. However, if the price difference is reasonable and Hong Kong presents enough attractions, visitors are likely to opt for extended stays.

The retail property market in Hong Kong is currently navigating significant challenges, as evidenced by declining sales figures and shifting consumer behaviors. Despite these hurdles, opportunities exist in densely populated areas where retail investments can thrive. The recent restoration of multiple-entry visas for Shenzhen residents may provide a welcome boost to the retail sector, though it is crucial for investors and retailers to adapt to the evolving market landscape to fully leverage potential growth.