Mainland tourists could drive Hong Kong’s retail market growth up

Growth in the retail market could reach 25% or pre-pandemic levels.

Tourist volumes grew exponentially since the start of the year, the majority of which are from mainland China, CBRE Hong Kong revealed.

In a research conducted by CBRE Hong Kong titled Hong Kong Viewpoint – Hong Kong Retail Recovery: Opportunities and Challenges, results showed an average of 86,600 inbound tourists arrived daily in Hong Kong.

In particular, mainland Chinese tourists contributed about 30% of Hong Kong’s retail sales before the pandemic.

This signalled Hong Kong retailers to ramp up their supply as demand increased from tourist shoppers.

“This suggests significant growth potential for tourist arrivals, which will translate into opportunities for retails as the recover picks up steam,” the research paper said.

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The study explained that Hong Kong is a “gateway” destination for mainland tourists. Noting that there are about 86m people residing in the Greater Bay Area (GBA), the travel for mainlanders only takes about two hours to arrive in Hong Kong.

“While local consumption has proven to be a resilient, sustainable driver of retail sales amid market headwinds, the return of mainland tourists will fuel the growth of the retail market, particularly tourist-oriented retailers, such as luxury brands, medicines, cosmetics and beauty,” Executive Director and Head of Research CBRE Hong Kong Marcos Chan said.

The proportion of inbound mainland tourists consists of 80% of the total, nearing the pre-pandemic years of 2017 to 2019.

For total retail sales, the six-month moving average of Hong Kong in January 2023 was 25% under the first quarter of 2019’s peak. Meanwhile, private consumption expenditure stood just 2% below the level before the turn of the market in mid-2019, the report said.

Some hurdles that challenge Hong Kong’s competitive advantage are the growing presence of luxury brands on the mainland, similar nearby tourist destinations that are also gaining traction, and the easing of restrictions on international travel.

“With rents in prime shopping areas and high streets approximately 40% below the mid-2019 peak, leasing costs will climb in the next 12 to 24 months due to reduced vacancy and increasing leading demand. Beyond the traditional core districts, retailers could also explore other tourist hotspots such as West Kowloon and waterfront promenades alongside Victoria Harbour, as well as emerging office clusters,” said Senior Director of Advisory and Transaction Services – Retail CBRE Hong Kong.

CBRE Hong Kong remains optimistic, that if the trend of inbound tourists persists throughout the year, then total retail sales will fully return to pre-pandemic levels.