Prominent real estate advisor Savills pointed out that many retailers have reported a plunge in sales of between 50% and 80% over Q1 with tourist-focused trades worst affected. Since 2019, the retail sector has faced multiple challenges including a luxury tax cut in Mainland China, US-China trade tension sand social unrest among other things and finally the COVID-19 outbreak. It is as yet unclear when demand (mainland shoppers) will return, which sector will rebound fastest, and how retail will be reshaped longer term.
• Prime street shop landlords are more flexible with rents while mall landlords offer temporary rent relief
• Fashion retailers and F&B sector hit the hardest
• Retail market expected to transform since the market peaked in 2014
Prominent real estate advisor Savills pointed out that many retailers have reported a plunge in sales of between 50% and 80% over Q1 with tourist-focused trades worst affected. Since 2019, the retail sector has faced multiple challenges including a luxury tax cut in Mainland China, US-China trade tension sand social unrest among other things and finally the COVID-19 outbreak. It is as yet unclear when demand (mainland shoppers) will return, which sector will rebound fastest, and how retail will be reshaped longer term.
Prime street shop landlords are proving more flexible and rents fell by 14% QoQ in the first quarter, down by 43% YoY (Central: -43.7%; Causeway Bay: -44.5%; Tsim Sha Tsui: -39.8%; Mong Kok: -42.3%); while some shopping centre landlords are reluctant to adjust rents significantly regardless of the rise in vacancy. Some mall landlords are offering temporary rent relief of 30% to 60% discounts on a rolling monthly basis. In Q1, the overall shopping mall rents dropped by 16.5% OoQ and 38.5% YoY (Hong Kong Island: -43.7%; Kowloon: -37.9%; New Territories: -39.8%).
Some fashion and F&B retailers have closed all or part of their operations completely (e.g. ALAND, Koi Kei Bakery and Jamie’s Italian) or temporarily for virus prevention and to reduce overheads and staff have been laid off. The retail sector, especially the F&B segment is expected to face a tough time at least over the next month or so, as new measures are introduced to tackle a second wave of infections.
Mr. Simon Smith, Senior Director, Research & Consultancy said: “A hardening local situation combined with a lack of visibility is giving rise to a wide range of reactions to the current crisis from landlords and tenants. But on a more positive note, the lower rental costs will attract newcomers to the Hong Kong market, which for too long has charged the world’s highest occupational costs.”
Mr. Nick Bradstreet, Managing Director, Head of Leasing said: “History may not provide a direct comparison between this epidemic with SARS’s impact on the local economy and retail market, as post-SARS Mainland visitor numbers jumped following the introduction of the Individual Visit Scheme on 28 July 2003, which led to a structural transformation of Hong Kong’s retail sector. As far as we can see, vacancies are expected to rise over the next 6 to 12 months, which will put more pressure on rents over the rest of the year.”