Hong Kong landlords face tough year as protests dent rents

  • Business
  • Wednesday, 08 Jan 2020

Demonstrators react after tear gas was fired by riot police during a protest in Tsim Sha Tsui district of Hong Kong, China, on Monday, Nov. 18, 2019. Protesters clashed with police in chaotic scenes as dozens fled Hong Kong Polytechnic University in Kowloon, leading to multiple arrests and injuries, as a standoff continued in the heart of the city. Photographer: Kyle Lam/Bloomberg

HONG KONG: Landlords in Hong Kong, a city with some of the highest commercial rents in the world, are staring down the barrel of a tough year.

Anti-government protests that started in mid-2019 have taken their toll on shop and office owners.

Large scale protests in popular shopping districts and a slump in tourists have made it increasingly difficult for retailers.

According to the Hong Kong Retail Management Association, more than 5,600 jobs could be lost and thousands of stores may shut over the coming six months.

That’s already impacted the value of retail-leasing transactions, which dropped 26% in the second half versus the same period of 2018, data from Centaline Property Agency Ltd show.

“Retailers have become very cautious, ” said Marcos Chan, head of research for Hong Kong at CBRE Group Inc.

“There won’t be many expansions in the coming year.”

International brands have been scaling back their operations since the protests began in June.

Luxury fashion label Prada SpA decided not to renew its largest store in the Causeway Bay area in August, the South China Morning Post reported.

The landlord later slashed the rent by 44% to entice tenants.

Folli Follie, a brand of Greek firm FF Group, closed one of its shops in Central in December ahead of the lease’s expiration and the asking price has since been chopped by 40%.

LVMH, the world’s largest luxury conglomerate, plans to close a Times Square mall store in Causeway Bay after its request for lower rent was refused.

A slump in shop rents could threaten the city’s status as the world’s priciest retail-rental market.

Causeway Bay had the highest rents in the world in the third quarter, at US$2,544 per square foot a year, figures from Cushman & Wakefield Plc show.

Knight Frank LLP estimates rental costs for street shops in prime shopping areas will decline by 15% or more in 2020 as a result of ongoing social unrest.

The possible outbreak of a mysterious pneumonia may also weigh on the retail industry.

Public hospitals have reported at least 21 cases of people who presented with fever, respiratory infection or pneumonia symptoms and had visited the city of Wuhan in China, where the lung infection originated.

Some see the nadir as an opportunity. Citigroup Inc said in a Jan 2 note that it’s now bullish on Hong Kong retail landlords. — Bloomberg

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