What: New tourists behaviour and changes in real estate dynamics are currently playing in favour of Singapore over Hong Kong.

Why it is important: Both cities do not have a domestic market which allows sustainaing the current retail structure, and both are seeking to retain their state of regional hub in order to remain attractive to tourists.

Hong Kong and Singapore are experiencing significant retail leakage as residents prefer to shop in neighboring cities where their money goes further—Shenzhen for Hongkongers and Johor Bahru for Singaporeans. This trend is expected to continue, with analysts labeling it the "new normal" for Hong Kong and a growing issue for Singapore.

In Hong Kong, the shift of consumer spending to the mainland, especially to cities within the Greater Bay Area like Guangzhou and Zhuhai, is notable, with over 35 million digital transactions recorded in Shenzhen alone in 2023, a 70% increase from 2022. This change is exacerbated by a slow recovery in tourism and decreased spending by mainland tourists, who now spend 16.4% less per visit. Despite Hong Kong's efforts to attract 46 million visitors in 2024, anticipated spending is not expected to rebound to pre-pandemic levels, challenging the local retail sector further.

Singapore, on the other hand, benefits from a more diversified tourism base and rising regional affluence, which boosts its retail sector. However, the significant price differential in Johor Bahru continues to draw Singaporeans across the border, a practice bolstered by the upcoming rail link between Singapore and Johor Bahru, set to enhance travel convenience further when it opens in 2026.

Despite these challenges, retail rents in prime areas of both cities showed slight increases in the first quarter, with Hong Kong's high street shops and prime shopping centers rising by 1.7% and 0.7% respectively, and Singapore's prime area rents up by 0.6%. The resilience of Singapore's retail sector is partly due to its broader appeal to tourists from across Southeast Asia, highlighted by events like major concerts that draw regional visitors.

Could Singapore be the new Hong Kong?