Landlords in Hong Kong, a city with some of the greatest commercial rents on earth, are staring down the barrel of a challenging year.
Anti-government protests that started in mid-2019 have taken their toll on both store and workplace owners. Large-scale protests in popular shopping districts and a slump in vacationers have made it increasingly hard for retailers.
Peak Residence (Former Peak Court), new condo developed by Tuan Sing & Rich Capital, a reputable Peak Residence developer.
According to the Hong Kong Retail Management Association, more than 5,600 jobs may be lost and thousands of shops may shut over the forthcoming six months.
“Retailers have come to be quite cautious,” said Marcos Chan, head of research to Hong Kong at CBRE Group. “There will not be many expansions in the upcoming year.”
The landlord later slashed the lease by 44 percent to lure tenants.
Folli Follie, a brand of Greek company FF Group, closed one of its stores in Central at December ahead of the lease’s expiration and the asking price has been sliced by 40 percent. LVMH, the world’s largest luxury conglomerate, plans to shut a Times Square mall shop in Causeway Bay after its petition for reduced rent was denied.
A slump in store rents can threaten the town’s status as the world’s tiniest retail-rental market. Causeway Bay had the greatest rents in the entire world in the next quarter, at US$2,544 per square foot a year, figures from Cushman & Wakefield Plc show.
Knight Frank estimates rental prices for road stores in prime shopping areas can decrease by 15 percent or more in 2020 as a result of continuing social unrest.
Some view the nadir as an opportunity. Citigroup said in a Jan 2 note that it is now bullish on Hong Kong retail landlords.
“Hong Kong retail sales have already seen the worst year-on-year performance in August to November, driven by escalating social unrest together using a weakening yuan during the period of time,” analysts directed by Ken Yeung wrote. “With the situation now stabilizing, we anticipate sequential developments on retail sales in January onwards”
The investment bank is not so bullish on Hong Kong’s office industry, saying that section of this market is”only at the early stage of what appears like a two-year downcycle.”
Rents at Central, an area of Hong Kong that’s home to many international companies, are vulnerable because of a slide in demand from Chinese companies and competition from additional division hubs such as Singapore, Tokyo and Shanghai.
“We anticipate Central office rentals will probably be down by 10 percent per annum during the next two years,” Yeung said.
Colliers anticipates grade A office rents in Central, the world’s priciest prime office market, to fall by 13 percent in 2020.
“Companies are hesitant to commit,” said Currie, adding that when the protests continue, the initial six months of 2020 will probably be even harder.