NORTHBOUND TRAVEL TRENDS

In January 2023 when Hong Kong finally reopened its borders, everyone was hoping for a rebound in both the local economy and inbound tourist numbers, benefiting the much-depressed local retail sector. In the first half of 2023, the retail market did indeed stage a strong rebound of 21% YoY in terms of sales and 5% in terms of street shop rents. Nevertheless, the recovery proved short-lived with retail sales only registering 12% growth in the second half of 2023, before recording a first meaningful decline of 1% in Q1/2024. Retail rents flattened out in the second half of 2023 before heading downwards by 3% as a result.

The retail market downturn coincided with the rise of northbound travel, when Hong Kong residents departing by the various land control points increased from 3.9 million trips per month in the first half of 2023 to 6.1 million trips per month in the second half of 2023. Such travel increased to 7.0 million trips per month in the first four months of 2024, with a majority of these trips likely to be same-day trips to Shenzhen and other cities within the Greater Bay Area (GBA).

REASONS FOR THE LOCAL RETAIL DOWNTURN

The strong Hong Kong dollar, a side effect of high interest rates, has been a fact of life over the past two years, with the RMB and Euro depreciating by around 10% against the currency, while the Japanese Yen has declined by over 30% during the same period. This phenomenon, together with ‘revenge travel’ in 2023 after three years of border closure, led to more locals travelling abroad (short and long-haul) over the following 18 months.

Likewise with most goods and services bought by tourists in Hong Kong more expensive than four years ago, inbound tourists did not recover as fast as expected, and many who came spent significantly less than in 2018, with total tourist spending declining by 48% in 2023 to HK$141.3 billion, HK$130 billion less than 2018 levels. Consumption downgrading was also evident among Mainland tourists, with their  same day and overnight spending receding by 43% and 8% respectively from 2018 to 2023.