Hong Kong retail landlords look for concepts to transform shopping amid low foot traffic as Shenzhen malls lure locals

In Hong Kong, the retail landscape is undergoing a significant transformation. Shopping mall landlords, faced with low foot traffic and numerous vacancies, are exploring innovative concepts to revitalize their shopping centres. Major players such as New World Development and Nan Fung Development are at the forefront of these changes, grappling with evolving trends that are reshaping the local retail industry. Oliver Tong, the head of retail at JLL in Hong Kong, noted that the shopping behaviours of both local consumers and tourists have significantly changed over the past three years. He also pointed out that the operational models and tenant mix in shopping malls of nearby cities have improved, intensifying the competition that Hong Kong is facing.

To counter this, Tong suggests introducing retail tenants that offer unique experiences, which could serve as a catalyst for a sales rebound for retail landlords. New World, for instance, is set to launch Hong Kong's first KidZania, an indoor family attraction that allows children to role-play different jobs, at its 3. 8 million sq ft complex, 11 Skies, located near Hong Kong International Airport. KidZania, which originated in Mexico City, has expanded to various countries and is set to return to Singapore next year after its closure 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. For instance, HSBC will establish the first wealth-management centre for kids, providing opportunities to experience daily banking activities. Other facilities in the mall targeting kids include sports and augmented reality (AR) adventures.

Nan Fung Development is also making strides 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. However, Tong noted that 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. 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. 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.