Hong Kong street-front rents are down
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Hong Kong street-front rents have plunged by 54 percent from their peak in the first quarter of 2013, according to data from real-estate advisor Savills.
Much of that decline has occurred in recent months since the Sino-US trade war broke out and amidst growing social unrest on Hong Kong’s streets, triggered in June by the now-axed extradition bill.
According to Savills, Hong Kong street-front rents in all prime areas experienced double-digit declines during the third quarter of this year. Causeway Bay was hit hardest, down 17.5 percent, as weekend and public holiday trade was disrupted by protest activities. Retail categories popular among mainlanders have seen significant retrenchment.
Hong Kong Street-front rents in Tsim Sha Tsui and Mong Kok fell by 15 percent quarter on quarter, and in Central by 13.9 percent.
Mall rents have also been hit hard, dropping by 14.2 percent overall. By region, Hong Kong Island mall rents were down by 13.6 percent, Kowloon by 12.7 percent and in the New Territories by 16.4 percent.
“Amid the doom and gloom, the positive news is Sheung Shui continues to see mainland visitors, and sales in the area are down ‘only’ 10 to 20 percent in the absence of disruption,” observed Savills.
More locally-oriented centres in Tseung Kwan O and Tuen Mun Town Plaza are also bearing up, while local restaurants are proving relatively immune, said Savills.
‘Difficult to see any upside’
“Causeway Bay was hit hardest, down 17.5 percent, as weekend and public holiday trade was disrupted by protest activities.”
Simon Smith, senior director, research & consultancy at Savills, said poor macroeconomic conditions compounded by social unrest are undermining Hong Kong’s traditional role as a retail hub in Asia.
“It is difficult to see any upside at this point.”
With more than 10 countries and regions have issued travel advisories for Hong Kong; several major events have been canceled or postponed and August’s hotel occupancy rate dropped to 66 percent, he said.
“But, looking ahead, it is worth noting that Hong Kong is expected to remain a key market for retailers in the region and that while the trade war has undermined local and overseas consumption, the local residential market has remained relatively resilient and interest rates remain low.”
Savills believes that without a resolution in sight to either issue affecting Hong Kong retail, the current market conditions could prevail into next year. The negative impact of the Occupy Movement in 2014 was felt for at least 12 to 18 months, although day-trippers are expected to be the first to return when things returned to normal.
Nick Bradstreet, MD, head of leasing at Savills, said some street-front landlords are offering short-term and ad-hoc rent relief, cutting rents by 15 to 20 percent for three months, or occasionally longer.
“Mall landlords are less forgiving and are tending to wait and see. At Pacific Place, Swire has proved the exception, offering 10 to 30 percent reductions on a case-by-case basis,” said Bradstreet.
As earlier reported, Hong Kong retail sales plunged by a record 23 percent in August, with the luxury goods sector hit hardest, with sales down about 50 percent year on year.
On a more positive note, given the weaker Renminbi, lower taxes and less inclination to travel, some luxury retailers are expecting record sales in mainland China in 2019.
Questions & Answers
Q.Which specific areas saw the largest declines in street-front rents during the third quarter of this year?
Which specific areas saw the largest declines in street-front rents during the third quarter of this year?
Causeway Bay experienced the largest drop at 17.5 percent, due to protest activities disrupting trade. Tsim Sha Tsui and Mong Kok saw rents fall by 15 percent, while Central was down by 13.9 percent.
Q.Are all retail areas in Hong Kong equally affected by the downturn, or are some proving more resilient?
Are all retail areas in Hong Kong equally affected by the downturn, or are some proving more resilient?
No, some areas are bearing up better. Sheung Shui still sees mainland visitors, with sales down only 10 to 20 percent. Locally-oriented centres like Tseung Kwan O and Tuen Mun Town Plaza are also performing better.
Q.What measures are landlords taking in response to the challenging market conditions?
What measures are landlords taking in response to the challenging market conditions?
Some street-front landlords are offering short-term, ad-hoc rent relief, typically cutting rents by 15 to 20 percent for three months or more. Mall landlords are generally less accommodating, though Swire at Pacific Place is an exception.
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