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Hong Kong grows despite economy

By Susan Thorne

HONG KONG -- So much hype, so little change. Great Britain's return of Hong Kong to China last summer appears to have had little effect on retailing or the value of retail real estate in the former colony.

Instead, the business community is concerned about the Far Eastern economic crisis, which has gained pre-eminence over issues related to China's takeover.

The July 1 handover of Hong Kong to China was quickly overtaken in significance by the recent stock market and monetary upheaval that swept several Southeast Asia countries, starting with Thailand in July and spreading to the Philipines, Korea, Japan, Malaysia and Indonesia in the fall.

Despite the turmoil, the Hong Kong dollar largely maintained its value (which is pegged to the U.S. dollar) throughout this period, while the currencies of the other nations weakened.

But the woes could affect Hong Kong in other ways. Some financial observers question whether Hong Kong's exports will be less competitive as a result, since its neighbors in the region are able to offer bargain prices as a consequence of their devaluations. But the overall impact on retailing in Hong Kong is not yet clear. Sources say retail sales are healthy, although somewhat lower due to a tourism slump, and shopping center developers continue to plan for future projects.

"The handover has had no major impact on the market," said Charles Cheng, research manager with Colliers Jardine international property consultants, Hong Kong. "The retail property market here has had a rather mixed development this year, but the handover has had no major negative impact on the retail market."

Domestic consumer spending remained the same when British rule came to an end here, agreed Norman Leung, director of retail leasing for Hongkong Land Ltd., Hong Kong. Retail vacancy rates were stable, he reported, and rents remained at the same level.

"For well-located street shops and good shopping centers, there hasn't been any change at all," confirmed Jolyon Culbertson, director & general manager, Swire Properties Ltd., a leading Hong Kong retail development and property investment company.

The financial market upheaval of late 1997 made it more difficult to assess the effects of the handover in isolation, these sources said. They acknowledge, however, that retail sales slumped slightly in the second half of 1997, following a strong first half.

"Obviously there was some hyping of sales in the second quarter due to the handover," Mr. Culbertson said, "so that would explain some softness in the third quarter. There definitely has been a bit of a downturn in sales in the third quarter."

A drop in tourist visits after the handover, especially on the part of Japanese visitors who spend a significant amount in Hong Kong on brand-name apparel and accessories, contributed to the slump.

"The decrease of Japanese visitors during the handover period becomes a cause for concern," Mr. Cheng said.

While domestic consumer demand remained unchanged, the drop in tourists since July had a direct impact on certain retailers, Mr. Leung said.

"Some retailers, especially those with fashionable or seasonable items such as apparel and fashion accessories, were speculating and brought in excessive inventory," he said. "This forced them to mark it down after the handover."

On the upside, confidence in the retail market remains high. New shopping centers have come on stream, Mr. Leung observed, including Plaza Hollywood, the Diamond Hill-area mall which he said was very well-received by the local market.

Mr. Cheng predicted an increased supply of retail space in the next 12 months, with more regional shopping malls, spurred by the development of the railway for the new international airport.

Swire Properties is opening its new Festival Walk shopping center in Kowloon (the south mainland area of Hong Kong) this summer. The 1 million-square-foot mall is already 70% leased, Mr. Culbertson reported.

But despite developer optimism about Hong Kong's long-term prospects, Mr. Culbertson said the financial crisis is uppermost in people's minds.

"At the moment, we're on a lower level of confidence for the macro-economy for the next two quarters," he said. "People, including retailers, are taking the view that they will be having a quieter time for a couple of quarters."

He pointed out that Hong Kong "is a highly sensitive place -- one which senses economic difficulties earlier than most places."

But, looking on the bright side, he added that it also has always been one of the first markets to detect improvement.