HK retail landlords boost investments amidst sector downturn

They are enhancing malls through marketing, renovations, and amenities like pet-friendly spaces.

Major landlords in Hong Kong are ramping up investments to attract more foot traffic amidst a downturn in the region’s retail sector, according to S&P Global Ratings' latest report titled "Hong Kong Retail Property: Survival Of The Fittest."

Wilson Ling, credit analyst at S&P Global Ratings, highlighted ongoing challenges driven by shifts in spending patterns and increased online shopping, which are impacting both luxury and everyday retail sales in the city.

"Hong Kong's retail sector will stay under pressure due to structural changes in domestic and tourist spending patterns, as well as increasing outbound travel by locals," said Ling.

He noted that Hong Kong has yet to regain pre-pandemic levels of mainland Chinese visitors, contributing to sustained pressure on retail sales. Sales declined by 6% year-on-year in the first five months of the year across all spending segments, including luxury and supermarket categories.

"Given the pie is not growing, major landlords need to attract footfall from rival shopping areas and online retail," said Ling.

To counter these trends, landlords are focusing on strategic upgrades such as marketing initiatives, mall renovations, and adding consumer-friendly features like pet-friendly spaces and loyalty programs. These efforts aim to draw shoppers away from competing shopping areas and online platforms.

Despite facing potential challenges like negative rental reversions, S&P Global forecasts that rated Hong Kong retail landlords will maintain stable occupancy and rent levels compared to traditional high street properties.

The proactive investments by rated landlords have already shown promising results, with vacancy rates below 5%, contrasting sharply with the higher vacancies seen in traditional retail hubs like Granville Road and Jaffe Road.