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News Release

Hong Kong and Macau

Jones Lang LaSalle: Unlocking the Retail Market Puzzle


The government predicts a negative GDP growth in Hong Kong, while private sector forecasters’ expectations are largely on par. However, other than the shutdown of a few chain-store retailers in 4Q08, anecdotal evidence does not suggest a notable retail market collapse to date, according to Jones Lang LaSalle’s latest Hong Kong Economic Insight.
 
Foot traffic in shopping centres remains heavy and long queues still exist outside of many restaurants. The high correlation between GDP growth and retail sales in Hong Kong suggests that this phenomenon could be temporary. There is a high possibility that retail sales will experience a larger contraction than the overall economy.
 
Total sales fell by 3.9% y-o-y in 1Q09, the first decline during a first quarter of a year since 2003. Sales of shopping categories such as clothing and footwear fell by 7.9% y-o-y, consumer durables declined by 12.8% and department store items were down 5.2% y-o-y over the same period. Meanwhile, big-ticket items like motor vehicles saw the largest decline in sales, down 34.7% y-o-y. The retail market outlook is filled with apprehension in terms of domestic and tourist consumption context.
 
While domestic consumption accounts for about 75% of Hong Kong’s total retail sales, tourist consumption accounts for the remaining 25%. The inbound tourism market has also been notably affected since the financial crisis, posting a 0.9% y-o-y decline in tourist arrival in 4Q08, the first quarterly contraction since 2Q03.  Although a marginal improvement has been observed, with tourist arrivals edging up 1.8% y-o-y in 1Q09; the slight growth was only supported by Macau and China, which saw a 2.7% and 12.6% y-o-y growth, respectively.
 
Fortunately, tourists from China continued to grow by 12.3% y-o-y in January and February. China will strengthen its position as one of Hong Kong’s core tourist sources as it is backed by the central government. The green light for the more than 2 million eligible Shenzhen permanent residents to apply for 12-month multiple-entry visas to Hong Kong is one of the examples. The proposed scheme to facilitate direct travel of individual non-Shenzhen permanent residents to Hong Kong is another.
 
‘This will bring along positive momentum to Hong Kong’s retail market amidst a slower-growing tourism market,’ remarked Marcos Chan, Jones Lang LaSalle’s Head of Research, Greater Pearl River Delta.
 
The recent swine flu pandemic is set to further cloud the retail market outlook; although we believe any negative impact should be less severe than that of the SARS due to the lessons learnt from the experience. However, if the pandemic spreads across to China and Hong Kong or somewhere close within the region, tourism and retail sectors will inevitably be affected, dampening visitor arrivals and tourist receipts.
 
The challenging environment is paving the way for a sharp contraction in Hong Kong’s retail market, and as retail space rents are positively correlated with retail sales performance, they are set to face pressure for the remainder of the year.
 
‘Although Hong Kong’s retail market landscape is arguably more solid today than a decade ago, the deterioration in the global economy is pointing to a less promising situation. Anecdotal evidence may be suggesting a less worrying picture, but the quarters down the road are critical as some of the market’s lagging effects become more apparent,’ concluded Mr. Chan.