In August 2012, Hong Kong retail sales value increased 4.5% year-on-year (YoY) to HK$35.8 billion. The growth decreased by about 50% compared to that of 8.7% YoY in May 2012.

The European debt crisis and subdued US economy affect both Hong Kong’s retail sales as well as spending power of mainland Chinese. The retail sales value of luxury goods, such as jewelry, watches and gifts, in Hong Kong recorded the first negative growth in August 2012 since the financial crisis period in 2009.

Although tourist arrivals keep increasing and saw record-high level at 4.9 million (76% were mainland Chinese) in August, retail sales per capita has dropped since early 2012 and fell by 30% YoY in the same month. According to a market survey, more than half of the mainland Chinese respondents said that they would reduce spending on luxury watches and handbags and change their interest in pharmaceutical and make up items.

Significant reduction in retail spending and consumption of luxury goods by mainland Chinese visitors can be attributed to the subdued stock and property market performance in China.

In the property market, retailers’ rental affordability lowers amidst reducing profits. Coupled with the impact of European debt crisis, international brands hold a more cautious attitude on expansion. Retail property rental growth slowed to 15% YoY in August 2012 from 27% YoY in August 2011.

Despite softening demand from retailers, the local retail property market still sees positive support. The ratio of retail sales value versus retail property stock sees growth annually and the retail property supply is limited in the core shopping districts. Furthermore, overseas brands continue to search suitable properties to open their shops in Hong Kong. Thus, the retail property rent is not likely to see a fall but is projected to grow at a milder pace of 10% next year.