Hong Kong 2M26 retail sales beat expectations, benefiting retail landlords but oil-price risks merit attention

Overview

This report discusses Hong Kong retail sales performance in January-February 2026 and the implications for Hong Kong property, especially retail property landlords. Hong Kong retail sales rose 19% year on year in February and 12% year to date in 2M26, above UBS's prior 7%-10% expectation. Growth was driven by higher gold prices, demand for iPhones, front-loaded electric vehicle purchases before the expiry of tax incentives, and the recovery in mainland visitor arrivals.

Core views

UBS's core view is that 2M26 Hong Kong retail sales were materially better than expected, a positive read-through for retail property landlords; however, part of the growth reflects price effects and one-off factors. Luxury sales rose 28% year to date, but after stripping out price increases, volume growth was only 8%. March retail growth is expected to slow to the mid-to-high single digits, mainly because mainland visitor growth is easing, local residents are traveling abroad more, and oil-price and asset-price volatility could dampen consumption.

Analysis framework

The report is based on Hong Kong government's monthly retail sales data, combining January and February to smooth out the timing impact of the Lunar New Year, and breaks down the performance across consumer electronics, automobiles, luxury goods, apparel, cosmetics, department stores, food and beverage, and supermarkets. It also incorporates visitor arrivals to Hong Kong, renminbi trends, online retail penetration, local resident departures, and oil-price scenarios to assess the transmission of retail sales to retail landlords.

Methodology notes

• industry data trackingCombined year-on-year and year-to-date retail sales analysis

  Use combined January-February data to smooth Lunar New Year seasonality and year-on-year growth to gauge retail momentum.

  The report combines January and February data and concludes that 2M26 retail sales growth of 12% better reflects the underlying trend after the holiday timing shift than either month alone.

• structural decompositionAdjusting for price effects and one-off factors

  Strip out items driven by specific events, such as consumer electronics and automobiles, to assess underlying retail demand.

  After excluding consumer electronics and one-off sales of automobiles and parts, retail sales still grew 9% year to date, indicating that the improvement is not entirely dependent on special items.

• pass-through analysisRead-through from retail sales to retail landlords

  Use retail sales growth to infer potential improvements in mall traffic, tenant sales, and the retail rent environment.

  The report believes stronger-than-expected retail sales are a positive read-through for retail landlords such as Link REIT, WREIC, and Hysan.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Link REIT

  Retail landlord, positively read through from improved Hong Kong retail sales

  Strengths

  Retail sales beating expectations and visitor recovery should help improve mall sales and tenant operating conditions.

  Weaknesses

  If growth is driven by one-off or price-related factors such as gold, iPhone, and EV demand, sustainability may be limited.

  Comparison

  Benefits similarly to other retail landlords from the retail recovery.

  Risks

  High oil prices, slower visitor growth, more local outbound travel, and a weaker macro backdrop.

• WREIC

  Retail landlord, positively read through from improved Hong Kong retail sales

  Strengths

  Retail sales and visitor recovery provide a positive read-through for its retail properties.

  Weaknesses

  March growth may slow, and part of 2M26 growth is tied to one-off factors.

  Comparison

  Shares the same positive read-through as Link REIT and Hysan.

  Risks

  Higher oil prices, asset-price adjustments, and spending leakage.

• Hysan

  Retail landlord, positively read through from improved Hong Kong retail sales

  Strengths

  Improved luxury spending and visitor spending could benefit retail performance in core shopping districts.

  Weaknesses

  Luxury sales growth is heavily driven by price effects, and volume growth is lower than sales growth.

  Comparison

  Like other Hong Kong retail landlords, it benefits from improved retail sales.

  Risks

  A downturn in luxury demand, higher oil prices, and slower visitor arrivals.

Key data

• Hong Kong overall retail sales in February+19% YoYAccelerated from +6% in January 2026.
• Retail sales year to date in 2M26+12% YoYAbove UBS's prior 7%-10% expectation.
• Retail sales excluding consumer electronics and one-off automobile and parts sales+9% YoYShows that underlying retail demand is still improving.
• Luxury goods sales+28% YoY YTDAfter stripping out price increases, luxury volumes rose by about 8% year on year.
• Mainland visitor arrivals to Hong Kong+22% in 2M26Above the +8% in December 2025, supporting the retail recovery.
• Online retail sales growth+28% in 2M26Slowed slightly from +34% in December 2025; online penetration remained broadly stable at around 8%.
• Mainland visitor growth in March+16% YoYBelow the +22% in 2M26 and one reason March retail growth is slowing.
• Local resident outbound travel+13% in MarchAccelerated from +2% in 2M26 and may divert local spending.

Impact & implications

In the near term, retail sales beating expectations improves the market's view of Hong Kong retail property fundamentals, supporting retail tenant sales, mall traffic, and landlords' rental expectations. Over the medium term, if high oil prices persist, Hong Kong retail could be pressured through fewer high-spending overnight visitors, more spending diverted north or online by local residents, and a stronger U.S. dollar among other channels.

Risks

• Persistently high oil prices could weigh on Hong Kong retail sales.
• Geopolitical tensions in the Middle East could trigger asset-price adjustments, including a pullback in gold prices.
• Mainland visitor arrivals growth could slow from +22% in 2M26 to +16% in March.
• More local resident outbound travel could divert domestic spending.
• Weaker macro conditions, increased new housing supply, and U.S. Federal Reserve hikes above expectations are risks for the Hong Kong property sector.

What to watch

• Whether Hong Kong retail sales growth in March and beyond slows from the high 2M26 level.
• Recovery rates for mainland and overseas visitor arrivals to Hong Kong.
• The impact of changes in gold prices, oil prices, and the renminbi exchange rate on consumption.
• The degree of decline in auto sales after the expiry of the first-registration-tax exemption for EVs.
• Whether online retail penetration continues to stay around 8% and whether competitive pressure from mainland e-commerce platforms continues to ease.