Why this is not just another retail downturn for Hong Kong

There was a time when Hong Kong’s retail landlords looked untouchable. If you wanted a dependable income, you would buy shares in the city’s leading real estate investment trusts (Reits), the steady dividend machines of a service economy built on foot traffic, routine and the long-held assumption that Hongkongers would always shop.\nThese companies were the unshakeable pillars of everyday commerce. They prospered not because the economy was roaring, but because consumers kept showing up.\nThat era now feels strangely distant. The latest jolt came when Link Reit, the city’s largest retail landlord colloquially known as the rent collector-in-chief, released its interim results for the six months ended September 30. The numbers were grim: revenue down by 1.8 per cent year on year, net property income down by 3.4 per cent and, most shocking of all, a 5.9 per cent decline in distribution per unit.\nInvestors wasted no time. The stock plunged by more than 6 per cent in a day. For the thousands of retirees who rely on Link’s steady payouts to pay bills and buy groceries, it was a punch in their monthly budget. But the deeper story here is what these numbers are quietly saying about Hong Kong.\nHong Kong’s retail sector has survived almost everything: financial crises, protests, pandemics and political upheaval. But the current downturn feels different. It’s not a dip. It’s a shift. Link’s figures make that plain.\nDespite impressive mall occupancy rates of 97.6 per cent in Hong Kong and 95.9 per cent on the mainland, the trust has been forced to sharply lower rents. Its reletting rents have fallen by 6.4 per cent in Hong Kong and 16.4 per cent on the mainland. The contrast with six months earlier is jarring. Back then, the rent reversion rate was a modest negative 2.2 per cent for Hong Kong and almost flat for the mainland.\n\n\nA decline of this speed and scale is less an operational issue and more a symptom of a market losing steam. Retailers are struggling to survive. To keep shops open, Link is doing something landlords rarely did in Hong Kong’s golden years: negotiating downwards.\nThat even neighbourhood malls are under pressure reveals a wider behavioural shift. Shenzhen has become the city’s de facto weekend playground. Lower prices, newer malls, endless dining options and social media have turned northbound spending into a routine. What was once an occasional treat is now a lifestyle.\nLocal retailers, once dependent on weekend crowds, now face their quietest moments whenever Hong Kong enjoys a long holiday.\nLink’s problems cannot be pinned only on consumer habits. Part of the pain is self-inflicted. Over the past several years, the trust expanded aggressively beyond Hong Kong, acquiring malls across mainland China, in Singapore, Australia and even Britain. What was framed as a bold diversification in retrospect includes acquisitions that look more like costly experiments than sure bets.\nMainland consumer sentiment has cooled, and retail conditions in markets such as Australia have softened. At the same time, rising global bond yields have weighed on property valuations. Link’s once predictable profile became entangled with global risks.\n\n\nWith CEO George Hongchoy Kwok-lung heading into retirement, there will be warm words about his tenure. Investors may remember something else. Many of the acquisitions diluted returns, raised debt levels and left the trust exposed just as Hong Kong entered its downturn.\nWhen a heavyweight stumbles, it forces a hard look at the field. Some businesses are finding pockets of strength. Sa Sa International Holdings reported a 9.4 per cent rise in revenue for Hong Kong and Macau, with an 11.4 per cent jump in same-store sales. Luk Fook Holdings expects earnings to climb by as much as 50 per cent. Even in the restaurant sector, where chains like Cafe de Coral warn of weaker results, Tai Hing Group is posting better news.\nThere are winners. But they are the exceptions. Success now demands an edge, a strategy, a brand with gravity. Anything ordinary is swept away by the wider tide.\nEconomists have long warned that Hong Kong’s cost structure has grown out of alignment with its regional peers. Housing prices, commercial rents and wages are high, while the Hong Kong dollar cannot devalue under the currency peg. If the city cannot adjust through its exchange rate, it adjusts through prices. Painfully. This happened once before, between 1998 and 2003, when rents and property values fell sharply. It appears the city is entering a similar process again.\n\n\nHome prices have fallen nearly 30 per cent from the 2021 peak. Office and retail property values have dropped even more. Civil servants are facing a pay freeze. Link, the ultimate symbol of stable income, has joined the list of institutions forced to tighten belts. All signs point to an economy that is entering a contraction phase and may not rebound quickly.\nFor many households, especially older residents depending on dividend income, the next year may involve more careful budgeting: a smaller lunch, a cheaper tea set, a quiet trimming of everyday comforts. As spending tightens, retail may feel the pressure, creating a feedback loop that slows recovery further.\nYet once costs reset, the city can regain momentum. Hong Kong still has tailwinds: active financial markets, Web3 initiatives, a steady inflow of companies and talent. But the near term is unavoidably tough.\nHong Kong has been through winters before. Spring usually follows – just not immediately.\n