Hong Kong retail landlord Chinachem cuts base rent close to zero for tenants in Tsim Sha Tsui to 'walk them through this tough period'

By Pearl Liu pearl.liu@scmp.com / https://www.scmp.com/business/article/3084462/hong-kong-retail-landlord-chinachem-cuts-base-rent-close-zero-some-tenants?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp&utm_content=3084462 | May 19, 2020 1:06 PM SGT
Chinachem Group is charging close to zero base rents as part of relief measures offered to some of its tenants in its Tsim Sha Tsui shopping centres since March.
Donald Choi, the Hong Kong retail landlord's chief executive, said in an interview on the sidelines of the China Conference, which the South China Morning Post is hosting, on Thursday that tenants selling duty-free products targeted mainly at mainland Chinese tourists have been offered the favourable terms to power through the city's worst ever economic recession on record.
"These shops were close to shutting down, as most of their customers are from mainland China. We would like to walk them through this tough period. We will look at turnover rent as compensation when their business comes back," he said, adding that such measures were in place at least until the end of June. Turnover rent is the amount of a tenant's revenue that its landlord gets over and above the base rent.
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Chinachem operates 7.5 million sq ft of investment property in the city. It has two commercial buildings with retail space in Tsim Sha Tsui " Chinachem Golden Plaza and Chinachem Cameron Centre. Choi said 90 per cent of tenants in these shopping centres had received rent relief that ranged from 20 per cent to 50 per cent. About five tenants will pay close to zero base rent. "We are looking at it case by case, and it is not fair to have one solution for everybody, as some industries are in a nosedive," he said.
Interview with Chinachem Chief Executive Officer, Donald Choi Wun-hing on Hong Kong's housing crisis, affordable housing. Pictured at Habitat for Humanity Hong Kong at the Congregation House in Causeway Bay. 27SEP18 SCMP / Jonathan Wong alt=Interview with Chinachem Chief Executive Officer, Donald Choi Wun-hing on Hong Kong's housing crisis, affordable housing. Pictured at Habitat for Humanity Hong Kong at the Congregation House in Causeway Bay. 27SEP18 SCMP / Jonathan Wong
Hong Kong retail sales fell to a historic low in the first quarter of 2020, plunging 36.9 per cent by volume from the same period a year ago, having been hit hard by the coronavirus pandemic and the resulting containment measures. About 10,400 retail sector workers are expected to lose their jobs and at least 5,200 stores are expected to shut by the end of this month, the Hong Kong Retail Management Association said. The industry body said more stores could shut later in the year.
"What's more important is that we do not only help tenants cut costs, but also help them do their own business and improve revenue," Ada Wong of Champion Real Estate Investment Trust, said during a panel discussion held during the conference.
(From left) Chinachem Group's Donald Choi, CGS-CIMB Securities' Raymond Cheng, SCMP Business Editor Eugene Tang and Champion Real Estate Investment Trust's Ada Wong at the SCMP office in Causeway Bay for the China Conference on May 14, 2020. Photo: May Tse alt=(From left) Chinachem Group's Donald Choi, CGS-CIMB Securities' Raymond Cheng, SCMP Business Editor Eugene Tang and Champion Real Estate Investment Trust's Ada Wong at the SCMP office in Causeway Bay for the China Conference on May 14, 2020. Photo: May Tse
Champion owns prime investment properties such as Langham Place in Hong Kong's Mong Kok district and Three Garden Road in Central, and controls a total gross floor area of 2.9 million sq ft in investment properties. It said it was paying for its small food and beverage (F&B) tenants to join food delivery platforms, so that they could expand their customer base.
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Chinachem was also experimenting with free delivery services since March at its Nina Mall in Tsuen Wan, where it was utilising its own hotel staff to help nine of its small F&B outlets that did not have additional resources or manpower for home deliveries.
The pandemic and the city's anti-government protests before that have kept big-spending mainland Chinese tourists away, badly hurting Hong Kong's retail sector in the process.
In March, Tiffany & Co, one of the world's leading jewellers, quietly shut its 4,000 sq ft store on Canton Road in Tsim Sha Tsui, one of the most expensive shopping locations in Hong Kong. In January, luxury brand Louis Vuitton said it was shuttering its 10,000 sq ft store in Times Square. In August last year, Prada said it was closing its 15,000 sq ft store at Plaza 2000, across the street from Times Square, for which it paid HK$9 million in monthly rent.
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A new norm is expected in the city, at least in the short-term, with more local-oriented business being embraced in Hong Kong.
"International brands are exiting the market to a certain extent, because Chinese big spenders are no longer coming to Hong Kong," said Chinachem's Choi. "New retail in the coming years will be much more focused on local consumer spending. That is a good thing " it actually serves our community's needs."
"Retail rents, especially those for street shops, are really high in Hong Kong. They need to come down. The crazy rents have already dropped, but could potentially go down more. Landlords really need to diversify, not like right now, where a majority is targeting mainlanders," Raymond Cheng, head of Hong Kong and China property research at CGS-CIMB Securities, told the panel.
Retail rents in Hong Kong's Central district had dropped by 20 per cent to an average of HK$534 (US$68.9) per square foot per month in the first quarter, the biggest drop among any of the city's core business areas, according to property consulting agency Cushman & Wakefield.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
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