Hong Kong is APAC’s second most preferred retail expansion destination

It is tied with Singapore at second place, whilst Chinese cities took the top spot.

Hong Kong SAR is one of the top three preferred destinations for cross-border expansion in Asia Pacific as retailers are seeing opportunities driven by a return of tourists, government stimulus as well as strong domestic consumption, according to CBRE’s 2023 Asia Pacific Retail Flash Survey. Tier 1 cities in Mainland China have topped the ranking as the most preferred destinations, followed by Hong Kong SAR and Singapore, both taking second place.

Asia Pacific retailers have an increasingly optimistic outlook as the sentiment turns positive with 72% of the retailers expecting their sales to rise from 2022 and 71% intending to open new stores despite rising costs.

Retailers polled in the survey also believe that some online sales will shift back to brick-and-mortar retail as the world is returning to normal. Nearly half of the respondents expect physical store footfall to return to pre-pandemic levels.

The survey has revealed that retailers prefer quality retail spaces in shopping malls and along prime high streets. They also have higher interests in secondary high streets (37% in 2023 vs 23% in 2021) due to their lower rents as compared to prime locations.

“China and Hong Kong are forecasted to enjoy the strongest sales rebound after lifting pandemic-related measures. Retailers are positive yet believe the rebound is in sight but will happen gradually over a longer period,” said Lawrence Wan, Senior Director, Head of Advisory & Transaction Services – Retail, CBRE Hong Kong.

“The return of Mainland China tourists to Hong Kong will give a strong boost to the sector. This is expected to drive leasing demand and rental growth, especially for tourist-oriented retailers.”

“Retailers should also work with landlords for flexible leasing arrangements or fit-out incentives to manage costs,” he continues.

Despite the positive outlook, cost inflation is set to remain a challenge for retailers, with 87% citing the increase in production and labour costs as the top concern, followed by labour shortages (67%) and the rising cost of running an online business (66%). Retailers are cautious in the expansion as 57% of them plan to increase the footprint in existing markets.

“Hong Kong’s retail sector has experienced a downcycle since the pandemic. The overall vacancy of high-street shops remained high at 15.4% in December 2022,” said Marcos Chan, Executive Director, Head of Research, CBRE Hong Kong.

“While high-street shop rents have declined by over 40% since the commencement of the market downturn in mid-2019 and the current retail leasing market still favours tenants, retailers shall consider regaining their exposures and footprints in tourist hotspots and take advantage of the deeply discounted rents.”