Hong Kong retail landlords look for concepts to transform shopping amid low foot traffic as Shenzhen malls lure locals
- New World Development and Nan Fung Development are among the landlords experimenting with new concepts to catalyse a rebound
- At the end of the third quarter, the vacancy rate was 6.4 per cent in shopping centres and 12.7 per cent in high street shops, JLL says
Amid weak foot traffic and significant vacancies, shopping mall landlords in Hong Kong are looking for fresh concepts and choices to transform the retail landscape in their shopping centres.
“The shopping behaviours of both domestic consumers and inbound tourists have undergone changes over the past three years,” said Oliver Tong, head of retail at JLL in Hong Kong. “At the same time, the operational models and tenant mix in shopping malls of nearby cities have improved significantly, intensifying the competition that Hong Kong is facing.”
Introducing retail tenants that offer unique experiences can serve as a catalyst for a sales rebound for retail landlords, Tong said.
The Mexic0 City-headquartered theme park was founded in 1997 and has expanded to having parks in countries including the USA, Egypt, Japan and Saudi Arabia. KidZania will return to Singapore next year after it closed in 2020 due to the Covid-19 pandemic.
KidZania Hong Kong plans to collaborate with nearly 30 international and local brands to create authentic occupational experiences for children.
“We see the change of consumers’ behaviours and the trend of experiential retailing, and traditional retail offerings are no longer enough to satisfy our customers today,” said a spokesman for New World. The partnership with KidZania is an illustration of how the company works with brands to create new experiences for customers, he said.
Nan Fung Development has stepped up its efforts with the launch of Airside, a mixed-use commercial development in the Kai Tak area. The 700,000 sq ft mall within the development showcases cuisine and tranquil open areas, with 80 per cent of the space already leased as of September.
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“While high rents in Hong Kong reflect higher sales productivity compared to other cities in the Asia-Pacific region, they also hinder creativity and limit the entry of experiential retailers and new concept brands,” Tong said. To address this, he suggests that landlords adopt more flexible leasing arrangements and forge strategic partnerships with forward-thinking tenants willing to invest in innovative concepts and enhanced shopping experiences.
JLL expects rental levels to undergo a long recovery to pre-pandemic levels. High street rents dropped 41 per cent during the Covid-19 restrictions between 2020 and 2022, and are now 72.5 per cent lower than the market peak in 2014, according to JLL.
At the end of the third quarter of 2023, the vacancy rate was 6.4 per cent in shopping centres and 12.7 per cent in high street shops, JLL said.
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DBS Group Holdings recently rented a 12,000 sq ft retail space in Central’s New World Tower, owned by New World, for HK$1.8 million a month, 18 per cent less than the asking price, according to a source familiar with the matter.
JLL’s surveys of consumers and retail operators in 2022 and 2023 revealed that respondents prefer family-run stores and unique cuisine restaurants, indicating a desire for new and distinct experiences.
However, in addition to changing tourist shopping habits and weakening domestic consumption, Hong Kong’s retail market also faces competition from other tourist destinations, an increasing supply of retail space and the rise of online sales, according to JLL.
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While Hong Kong’s retail sales have grown consistently since Covid-19 restrictions ended and the border with mainland China reopened, cross-border shopping has negatively affected the local market, with large malls in Shenzhen attracting young Hongkongers due to a wider range of offerings at discounted prices, Savills said in a report released on Thursday.
To regain its competitive advantage, the retail sector in Hong Kong needs to be reshaped, with property consultants emphasising the importance of embracing innovative concepts and delivering enhanced shopping experiences.
