HONG KONG: Hong Kong’s Central streets are grappling with a stark transformation, as nearly 200 shops now sit empty. In Soho, the vacancy rate is painting a grim picture, with over 20% of shops remaining unused. These once-busy spaces, filled with bars and shopping centres, now reflect the city’s struggling retail sector.
The luxury property market is facing similar challenges. The Business Times reported that a house at 15 Gough Hill Road, formerly owned by Chinese property tycoon Chen Hongtian, is now on the market for HK$700 million (S$122 million) to HK$800 million. This is less than half the HK$2 billion it sold for in 2016.
The Bank of East Asia took over the property in 2023, highlighting the immense pressure on Hong Kong’s real estate market. Home prices have now dropped to their lowest in eight years, driven by rising interest rates and a wave of emigration.
“This isn’t just another downturn,” said Dr Vera Yuen from the Faculty of Business and Economics at Hong Kong University in an article by Dimsum Daily. “We’re watching the death of Hong Kong’s old retail model in real-time.”
“Hong Kong needs to decide what it wants to be,” added Dr Yuen. “We can’t keep waiting for the good old days to return. They’re not coming back.”
Retail sales continue to decline
The struggles are reflected in retail sales, which fell 7.3% year-on-year in November 2024 to HK$31.7 billion. This marked the ninth consecutive month of decline. Jewellery and watch sales, once cornerstones of Hong Kong’s luxury retail scene, fell by 5.4%. Fashion sales dropped 7.5%, while department store revenues shrank by 12.3%.
As businesses struggle to maintain profitability, many are rethinking their strategies, embracing more flexible leasing arrangements. In Soho, landlords who once demanded sky-high rents now face a harsh reality. Many have opted to decrease rents by 30-50% and are resorting to short-term leases to keep their spaces occupied. Even the prestigious Pedder Building has seen ground-floor rents plummet to just a third of their previous levels.
Experts comment on changing economic landscape
Despite these challenges, there are signs of potential recovery. According to official data, mainland visitor numbers rose by 27% year-on-year in 2024, reaching 34 million. However, while this trend is expected to continue, experts remain sceptical about its economic impact as reported in an article published by South China Morning Post.
Gary Ng Cheuk-yan, senior economist at Natixis Corporate and Investment Bank, questioned whether the influx of visitors would bring the same benefits as before. “Would more visitors mean economic benefits, like it was in old times, given the change in consumption patterns? Could it really cancel out Hongkongers’ expenditure abroad?” he asked.
Ng commented that online shopping has significantly shifted consumer habits, reducing the appeal of shopping in Hong Kong for mainland visitors. “The structural changes brought by these thriving online platforms are likely to persist long-term.”
“Mainland e-commerce platforms could be more aggressive in expanding their business in Hong Kong by offering shorter delivery times and discounts on delivery fees,” he concluded.
This paradigm shift was also noted by the Secretary for Commerce and Economic Development, Algernon Yau Ying-wah, on a radio program. “As a result of the global economic uncertainty and the changing spending patterns of consumers, we have to seek changes, know how to cope with these changes and cope with them,” he said.
“Hong Kong is in the process of economic transformation – industry players must come up with innovative and creative ways to attract consumers,” he added.
Tommy Tam Kwong-shun, chairman of the Travel Industry Council, pointed out practical challenges facing Hong Kong’s retail landscape. “What I have heard a lot at the large-scale supermarkets is that when Hong Kong shoppers bulk purchase, there is not enough space to store things in their small flats,” he said.
However, Tam expressed hope that events such as the National Games or large-scale concerts could bring more visitors to Hong Kong this year. He also highlighted the economic benefits of tourists with multiple-entry visas.
“When there are more people, there will be more spending,” he said, encouraging businesses to promote themselves on social media to attract tourists and create a positive cycle of growth.
A path to recovery
While Hong Kong’s retail and luxury markets face significant challenges, the city’s resilience and adaptability offer a glimmer of hope. The growing number of mainland visitors and potential recovery in tourism could provide a foundation for revitalizing the economy. However, a shift in consumer behaviour, driven by online shopping and evolving preferences, will require businesses to innovate and embrace new models.
The road to recovery may be long and uncertain, but with creativity and a willingness to adapt, Hong Kong has the potential to navigate these turbulent times and rebuild a more sustainable future for its retail and property sectors.
Featured image by Depositphotos (for illustration purposes only)