Hong Kong retail property sector braces for collapse of once lucrative tutoring centres

By Pearl Liu pearl.liu@scmp.com / https://www.scmp.com/business/article/3079873/hong-kong-retail-property-sector-braces-collapse-once-lucrative-tutoring?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp&utm_content=3079873 | April 20, 2020 10:50 AM SGT
More than 400 spaces occupied by tutoring centres in shopping malls and commercial buildings across Hong Kong could soon become vacant in a further blow to the city's depressed retail property market.
The loss of the centres, which pay relatively higher rents, will be a big blow to their landlords, industry observers said. "Most landlords have offered some rent cuts to retain [tutoring centres], which are major contributors at local community shopping centres. However, without any business, they cannot survive," said Jeff Yau, property analyst at DBS Bank (Hong Kong).
About 93 per cent of the 500 centres surveyed by industry body Education Centres Union last week said that they would shut down in three months despite a cash injection of HK$40,000 (US$5,160) offered to each centre by the Hong Kong government as part of economic support measures. "Schools may only reopen in September and that means we have to pay rent while having no business for eight months. The HK$40,000 the government offered barely covers rent for a month," said Trevor So, a spokesman.
Retail property vacancies will rise across the city by a high single-digit rate, as more such centres surrender their spaces, not just in prime shopping districts, which have already suffered because of the anti-government protests last year, but also in smaller community malls, Yau said.
"We've already seen more spaces being surrendered by small private tutoring centres in community shopping malls, and on the second and third floors of commercial buildings," said Daniel Wong, chief executive of commercial property agency Midland IC&I. Big tutoring centres taking up 5,000 sq ft pay on average HK$150,000 a month in rent in the city's more bustling areas. Smaller centres occupying about 1,000 sq ft in neighbourhood shopping centres pay HK$20,000, according to Midland.
"As education centres are one of the hardest hit sectors during the epidemic, Link immediately started liaising with tenants in this sector among others. Almost all of them have been granted various help measures, including rental concessions," said Link Reit, a major neighbourhood shopping centre landlord in Hong Kong. It has 130 education institutions as tenants. "We understand a number of education centres might have suspended temporarily amid the pandemic, but they are still occupying our space and remain our tenants," it added.
In February, Henderson Land Development said that on top of a up to 60 per cent reduction in rents, it had allowed education institutions to defer payments, or settle them through instalments.
The tutoring business is very profitable. Last year, Matthew Cheung Siu-woon, the 22-year-old chief executive of Causeway Education, a tutoring centre, spent HK$916 million on a home in Mount Nicholson on The Peak, one of Hong Kong's most prestigious and expensive addresses.
But the industry has been hit hard by containment measures announced by the government to tackle the deadly Covid-19 outbreak. After the government suspended schools in February, most tutoring centres reported a sharp drop in attendance. A ban on groups of more than four people imposed last month has taken a further toll on the business.
"If tutoring centres move out, landlords will find it very hard to find replacements now. It is very common for these landlords to cut rents up to 30 per cent. Despite such big cuts, we expect to see a soaring number of empty shops, even in bustling areas," Midland's Wong said.
"Restaurants can usually be counted on to take up spaces on the second and third floors. But who is opening new restaurants right now?"
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