Hong Kong retail rents might need to be halved for tenants, landlords to survive coronavirus outbreak, developer says

By Martin Choi martin.choi@scmp.com

/ https://www.scmp.com/business/companies/article/3078132/hong-kong-retail-rents-might-need-be-halved-tenants-landlords?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp&utm_content=3078132 |

April 6, 2020 10:21 AM SGT

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Hong Kong's retail landlords might have to cut rents by 50 per cent to attract new tenants amid a worsening outbreak of the novel coronavirus, one of the city's richest developers said.

"For these few months, you'll probably see a 50 per cent cut in rents for the retail sector, or even more," Edwin Leong Siu-hung, founder of property developer Tai Hung Fai Enterprises, said in an interview. His company has more than 1,000 tenancy agreements all over Hong Kong, including offices, serviced flats, warehouses and about 200 shops. With an estimated net worth of US$4.5 billion, he is Hong Kong's 19th richest man this year according to Forbes.

"Nobody will want to start a business in these few months, and nobody's going to open a retail outlet ... unless the rents are so attractive. Otherwise, you just won't do it," he said.

"On a whole year basis, I wouldn't be surprised to see a 20 per cent cut in rents for the retail sector."

Hong Kong's February retail sales fell 44 per cent from a year ago to HK$22.7 billion (US$2.9 billion), for a 13th consecutive month of declines, according to government figures released on Tuesday. It was the steepest single-month fall on record, caused mainly by Covid-19's impact on tourism and spending, a government spokesman said. This worsens the outlook for a sector that has already been battered by months of anti-government protests that broke out last summer. Carrie Lam Cheng Yuet-ngor, Hong Kong's leader, too came out on Tuesday and urged that landlords waive shop tenants' rents.

Tai Hung Fai has provided relief to its tenants on a case-by-case basis, allowing retailers to renew contracts with measures such as lower rents and rent-free periods of up to three months. "We're helping out with the cash flow for them to pay the rent. We will cancel old tenancy agreements and do a new one with them, with certain rent-free periods at the beginning, hoping to tide over this uncertain period," Leong said.

"We're trying to help out tenants as much as we can. And we're trying to help those who we think will be able to survive over the long term."

Relief measures were not being extended to all tenants that approached the developer. Major tenants such as supermarkets, for instance, which are doing well were not included.

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"[Tenants] must have confidence in their own business, that they will survive when things get better, rather than tenants who don't even have confidence doing business and just want to get a rent-free period to finish the tenancy, to get out of it right away," Leong said.

"That can make life easier, especially in this environment. There's no business at all. You open your shop, you open your retail [outlet], [but] there are no customers, because everyone is still afraid to go out. So we are doing this.

"There's no other way. You don't want to push them against a wall. We are landlords and they are tenants. We depend on them for rent."

Renegotiating contracts, however, might not work in all cases, as some tenants might be struggling to even pay management fees, bills and wages as there is no business, said Stewart Leung Chi-kin, chairman of the Real Estate Developers Association's executive committee.

"The usual practice is to look at the existing rental contract and negotiate again after three months to see how the situation is. Each developer is in a different situation. The landlord has to suffer through these tough times along with the tenant. They have to tide through these difficult times together," Leung said.

Hong Kong's restaurant industry has also been hit hard by the outbreak. Tsui Wah Restaurant, a popular cha chaan teng, closed its shop along Wellington Street in Central last week.

Tai Hung Fai Centre, in Mong Kok on July 20, 2014. Photo: SCMP alt=Tai Hung Fai Centre, in Mong Kok on July 20, 2014. Photo: SCMP

"The restaurant industry in Hong Kong has been severely hit by the coronavirus. It has come at a time when the restaurant industry was already suffering. Unfortunately, all of our restaurants are going through their own difficult periods," Richard Ward, co-owner of Aqua Restaurant Group, which runs restaurants globally, including its eponymous eatery and the Dim Sum Library in Hong Kong, among others, said on Monday, March 30.

"We would stress the need and importance of working together to create a situation where good restaurants can survive this storm and come out the other side still alive, and prosper. It's in the landlords' interest to have that, the restaurants' interest, the customers' interest. It is critical at this stage, and we hope that restaurants and landlords can come together," he added.

The same day, the company signed an open letter addressed to Lam alongside a group of restaurant and bar owners in Hong Kong that together employ about 2,000 people. It urged the government to cut rents by 50 per cent where it is the landlord, to compel or subsidise private landlords to take similar measures. It also asked for subsidies to help keep staff on payrolls.

"The current measures without assistance will only kill our businesses " and indeed many of us have already elected to close outlets as it is simply not economically feasible to stay open," the letter read.

Additional reporting by Louise Moon

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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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