However in January, retail sales growth slowed to 0.9 per cent from 7.8 per cent in December despite 3.8 million tourist arrivals – nearly three quarters the level in January 2018.

A surge in Hongkongers visiting neighbouring Shenzhen for cheap prices accounts for the slowest sales increase in 14 months, according to property consultancy Knight Frank, while S&P noted that non-luxury spending in Hong Kong accounts for as much as 85 per cent of total retail receipts.

Supermarket sales fell 9 per cent in January from a year ago, while other non-luxury spending slipped 2 per cent, S&P said.

“Cross-border consumption habits of local residents remain a formidable challenge for the local retail sector,” said Lucia Leung, director of research and consultancy for Greater China at Knight Frank. “We expect retail sales to continue to improve, but they are unlikely to return to pre-pandemic levels in the short term. Shop rentals in core retail areas are expected to remain under pressure while absorption is taking place slowly.”

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In 2023, Hongkongers made more than 40 million trips via land borders, according to Cushman & Wakefield.

“We have seen severe impact on shopping streets and malls along the East Rail line, which are close to the borders of the northwestern part of Hong Kong,” said Kevin Lam, executive director and head of retail services for Hong Kong at Cushman.

In those areas, “sales were generally down by 20 per cent to 30 per cent across the food and beverage, wet market and supermarket sectors”, Lam said.

An example of an ‘experiential’ retail shop is the sprawling Anichi in Megabox in Kowloon Bay. Opened in February, the 20,000 sq ft store sells collectibles related to popular Japanese anime series and Marvel comics, among others. Meanwhile, a play room offers live events and games, video games, and photo-taking spots. Not far away, in Airside in Kai Tak, a 10,000 sq ft indoor surf house called Groundswell is garnering attention among young adults for its distinctive sports experience.

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The performance of three shopping centres owned by Swire Properties, one of Hong Kong’s largest commercial landlords, reflects the current trends, according to S&P.

The company’s upmarket Pacific Place shopping centre in Admiralty recorded a 44 per cent sales increase in 2023, while tourist-focused Citygate Outlets in Tung Chung, which is close to the airport, saw a 43 per cent rise. On the other hand, receipts for Swire Properties’ locally focused Cityplaza in Taikoo Shing improved just 6 per cent in 2023, S&P said.

“The luxury segment may see more improvement with the expectation that global interest rates will gradually ease from the second half of the year onwards, hence benefiting equity and real estate market valuations as well as the rebound of the yuan, [which could] reduce the price differential between the Chinese mainland and Hong Kong,” said Knight Frank’s Leung. “More mainland Chinese are also likely to come to Hong Kong for travel and shopping.”

Retailers in the athleisure segment, which combines sports, fitness and leisure activities, are also feeling optimistic about their prospects in Hong Kong this year, said Cushman’s Lam.

“There are a number of [mainland Chinese] brands in the retail, entertainment and food-and-beverage segments actively looking to new expansion in Hong Kong,” he said. “We anticipate new transactions from these players to take place in the coming quarters. Specifically, two streetfront shops along Queens Road in Central were recently leased to sports and athleisure brands.”

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“Momentum is definitely building up, but brands remain cautious because of the challenging economic situation,” Lam said, adding that the second half of the year is likely to be a better period for retailers.

Still, S&P believes that even the luxury segment will see limited sales growth owing to the 40 per cent drop in spending by same-day tourists from mainland China, compared to 2018.

“Economic growth in Hong Kong and mainland China has been slowing, moderating demand for high-end luxury items,” S&P said. “Some of these shoppers are now going to the mainland Chinese island of Hainan, which offers duty-free options. This makes it competitive with Hong Kong, a duty-free zone.”

The strengthening of the Hong Kong dollar versus the yuan is also dimming Hong Kong’s attraction as a shopping centre, it added.