High commercial rents are dampening the prospects for a speedy recovery in the retail sector, which has had a 25 per cent drop in sales value since 1997, according to the Hong Kong Retail Management Association.

Chairman Yu Pang-Chun said while there had been a downward adjustment in rents after the Asian financial crisis, many landlords were seeking sharp increases this year.

"Some of our members have told us that their landlords are asking for a double-digit increase in rent, which will more than offset the slight decrease in the past few years," Mr Yu told the South China Morning Post today. "This is going to pose a lot of difficulty for the retail industry, at a time when sales are down by a quarter from 1997 levels."

In 1997, retail sales amounted to HK$229 billion. Last year, the retailing sector employed about 210,000 people, with sales of HK$180bn, down 9.7 per cent from a year earlier.

Although the Government's year-on-year gross domestic product forecast for the year stood at 8.5 per cent, recovery in the retail sector was sluggish due to weak consumer demand and cheaper goods across the border, Mr Yu said.

Hong Kong consumers spent about HK$27bn in Guangdong last year, or 15 per cent of retail sales in the SAR and 3.6 per cent of private consumption, the association said.

"It's not difficult to imagine the loss suffered by our service industries as a result of this outflow of consumption," Mr Yu said.
High levels of rent and labour costs have also made it more difficult for retailers to keep operating costs down.

"All this translates into an unfavourable trading environment that deters local retailers from expanding," Mr Yu said. "We've also seen prominent international retailers and department stores leaving Hong Kong's retail market due to high rents and operating costs."