It would be unrealistic to try to stop people from spending their free time across the border and abroad, Chief Executive John Lee said on Thursday, amid complaints from local retailers and restaurants over flagging business as more Hongkongers choose to spend their money elsewhere.

Lee advised the retail industry to acknowledge the structural change in consumption patterns, and address the problem by seeking reform.

On a joint radio phone-in programme, one day after delivering his third Policy Address, Lee said the SAR is undergoing a period of transition.

It’s time to stop dwelling on the past success, he told businesses.

"Overall speaking, the retail industry isn’t doing really well. Even as we boost inbound tourism, we must first acknowledge the structural change of their consumption pattern," Lee said.

"Everyone needs to keep improving – not just the one in front of you or next to you. Start with yourself. Of course the government will try to help, but there will be ups and downs," he said, adding that he aims to compress this "transition period" as much as possible.

Many Hong Kong retailers and restaurants also say they are struggling to compete for customers against rivals in Shenzhen, Zhuhai and other parts of the Greater Bay Area.

Nearly one and half million Hong Kong residents left the city via various land border checkpoints over the Chung Yeung Festival long weekend, dealing a fresh blow to local businesses.

But Lee said this is only normal market behaviour, and the government will do its best to help local businesses, including looking at ways to tackle high rent and costs.

He said that being as Hong Kong’s economy is undergoing a period of change, one of the government’s roles is to look for new growth areas.

Authorities will now look into building a commodity trading ecosystem, leveraging on Hong Kong’s safe and free environment, he said.

A “global trader” has signalled its intention to establish a metal warehouse in Hong Kong, Lee said, describing this as the perfect starting point.

On a separate note, the chief executive pledged to forge full speed ahead with a plan to regulate subdivided homes.

He has proposed a bill which will set a minimum size and other conditions for the units, and landlords which don't register their properties will be prosecuted.

With an estimated 110,000 such units, Lee said one headache would be deciding how long the registration period should last.

"I'm an impatient man...I said, how about 12 to 18 months? But with 110,000 units to deal with, and divided by 12 months, we have to register about 9,000 each month. Is this pragmatic? I would need to discuss this with my colleagues," he said.