An empirical study on the relationship between cross-border travel and retail property performance in Hong Kong

Abstract

Hong Kong’s retail property market has underperformed since the full border reopening in 2023. In 2024, the price and rent indices of retail properties were dropped by 23.2% and 11.7%, respectively, compared to the pre-pandemic level in 2018 (Rating and Valuation Department, 2024). While macroeconomic conditions partially explain this downturn, the role of cross-border travel should not be overlooked. A new pattern of cross-border travel has emerged since the borders have reopened. Inbound cross-border travel has seen a decline in mainland visitor arrivals in Hong Kong, while outbound cross-border travel has surged in popularity, with more Hong Kong residents traveling to Shenzhen for leisure. This shift in cross-border travel patterns has closely associated with the underperformance of the retail property market. Yet, the relative influence of inbound versus outbound cross-border travel on the market performance remains contested. While existing literature is limited, this study seeks to determine whether inbound or outbound cross-border travel has a greater influence on retail property performance. To enhance objectivity, a dual quantitative approach was employed. First, a time-series analysis was used to explore the temporal relationship between cross-border travel and various retail property performance indicators, including price index, rent index, and retail sales value index, for the period before 2019. The results suggest that inbound cross-border travel has a positive impact on retail property performance. Specifically, a 1% increase in mainland tourist arrival is associated with approximately a 0.47% increase in retail property price index and a 0.25% increase in retail property rent index. In contrast, outbound cross-border travel shows insignificant impact on retail property performance. However, the time-series analysis could not capture the spatial variations of the impact or directly explain the post-reopening price decline in specific districts. Therefore, a cross-sectional analysis was used to investigate the distinct effect of inbound versus outbound cross-border travel on retail property prices at the district level. The analysis treats the underperformance of retail property post-border reopening as a natural experiment. The regression analysis reveals that retail properties in tourist shopping districts experienced a price decline of 35% after border reopening, compared to a price decline of 14% in residential districts. The greater price decline in tourist shopping districts after border reopening demonstrates a greater influence of inbound cross-border travel on retail property prices than outbound cross-border travel at the district level. The findings from both analyses demonstrate that inbound cross-border travel has a greater influence on retail property performance than outbound cross-border travel in Hong Kong. The findings yield significant implications. Firstly, the findings resolve the ambiguity of the relationship between cross-border travel and retail property performance after the border reopening. While some media have emphasized outbound travel to Shenzhen as the primary cause of retail property underperformance after the pandemic (Oriental Press Group, 2024; BusinessFocus Editorial, 2024; Sing Tao Daily, 2024), this study demonstrates inbound cross-border travel as a more predominant factor. Additionally, the outcomes suggest the need to rebalance the resource allocation from policies focusing on local consumption to inbound tourism recovery strategies such as the expansion of the Individual Visit Scheme (IVS) and the resumption of the Multi Entry Permit (MEP). More importantly, it highlights the significance for the government to focus on enhancing tourists’ experiences, such as investing in the mega-event economy. This could counter the challenges posed by mainland China’s “zero tariff” policy in Hainan, which greatly reduces Hong Kong’s appeal as a luxury shopping hub. Furthermore, the findings highlight the importance of monitoring the inbound cross-border travel trend for investors making investment decisions. Lastly, the results offer insights into how interconnected urban economies shape the dynamics of retail real estate structures.