UBS adjusts its 2024 prediction to flat from a 5 percent decrease, whereas JLL observes indications of stabilization as the frenzy over shopping in Shenzhen subsides.

Hong Kong’s struggling retail industry might see a shift in the upcoming months, with city dwellers showing reduced interest in seeking deals in Shenzhen, suggests UBS Investment Bank along with JLL.

The Swiss bank stated on Monday that the city’s retail sales were expected to remain stable this year, marking an improvement from their earlier prediction of a potential drop up to 5 percent.

Hong Kong recorded its The retail sector experienced declines for the 11th consecutive month in January. With a 3.2 percent decrease compared to the previous year, as indicated by the most recent official statistics, this decline is less severe than the 9.6 percent drop seen in December.

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Despite the overall downturn, certain sectors experienced growth. supermarket sales climbed by 4.9 percent compared to the previous year. There was also a significant rise of 10.9 percent in the sale of food, alcohol, and tobacco products. Additionally, spending on medicines and cosmetics went up by 4.3 percent.

The announcement regarding February's retail sales by the government is set for early April.

In the meantime, the monthly number of outbound trips made by Hong Kong residents via land checkpoints—a indicator of journeys to mainland China—ceased rising over the past six to seven months. This followed an increase of up to 140 percent compared to 2018 figures.

Departures by residents decreased to 2.1 for every arriving visitor during the initial two months of 2025, down from 2.3 in 2024, indicating a possible stabilization in international travel patterns, according to Cathie Chung, who serves as the senior director of research at JLL.

She stated that simultaneously, the retail sector is indicating signs of stabilization.

UBS cited the scarcity of newly constructed shopping centers in Shenzhen as one reason for adjusting their forecast.

Following the reopening of borders after two years and a decrease in the number of new malls in Shenzhen, John Lam, who leads Asia-Pacific and Greater China property research at UBS, noted that the city offers fewer novel experiences.

Prior to the complete reopening of the border in January 2023, 22 percent of shopping centers in Shenzhen had been finished between 2020 and 2022. In contrast, just 7 percent of Hong Kong’s mall spaces were as recent during this period.

This indicates a more "novel" experience for Hong Kong residents traveling north compared to Shenzhen residents going south once the border reopened, according to Lam.

In January 2024, when Costco made its debut in Shenzhen, Residents of Hong Kong went there in large numbers and waited in line for hours. to purchase from the megastore.

Lam mentioned that Shenzhen probably won’t see many new shopping centers in the near future. The rise in residential property values between 2017 and 2020 led to an uptick in completed malls because developers usually needed to construct both retail spaces and office buildings to secure land bids.

He stated that due to the downturn in the residential market in Shenzhen starting from 2021 and the ongoing economic uncertainties in Hong Kong since 2019, our estimates suggest that the annual retail property supply in both Hong Kong and Shenzhen will decrease by approximately 67% between 2025 and 2027 compared to the period of 2021 through 2024. This projection is derived from our detailed analysis along with forecast data provided by JLL.

Nevertheless, the city’s retail sector continues to face challenges due to reduced tourism expenditure resulting from the robust Hong Kong dollar. Although the total number of visitors increased, their overall spending decreased by 0.7% in 2024 compared to 2023, and individual visitor spending dropped sharply by 24.1%.

The series of mega-events scheduled by the government, along with the reinstatement of the multi-visit Individual Visit Scheme for residents of Shenzhen at the close of 2024, are anticipated to stimulate the retail industry, according to Chung.

She mentioned that the increasing desire for consumption will likely thrive alongside the recovering stock market, thereby enhancing expenditures within the urban area.

Reduced retail rents, which are lower than past high points, might entice both international and domestic brands to set up shop in Hong Kong. This could lead to consistent rental activity and a livelier shopping scene enriched with varied products, as she noted additionally.

Chung stated that the combination of these favorable factors indicates the sector might be nearing a turning point toward recovery.

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