McDonald's makes hay while the sun shines, selling its TST premises for HK$1 billion as trade war crimps retail property prices

By Lam Ka-sing / | May 16, 2019 12:25 PM SGT
The US fast food giant McDonald's is seeking to sell a prime street level shop in Hong Kong worth HK$1 billion (US$127.4 million), 15 times the HK$66 million it paid 30 years ago, but property agents say that very few investors will be willing to make such a huge investment in the current economic environment.
McDonald's is seeking tenders for a 4,260-square foot shop (396 square metres) at Star House on Salisbury Road in Tsim Sha Tsui, currently occupied by the health and beauty chain Watsons, which has been renting the space for more than 20 years, according to JLL, the sole agent.
The property is valued at HK$234,741 per sq ft or around HK$1 billion.
According to Alex Lo, director of Midland IC&I, finding buyers for retail properties worth HK$100 million or more amid the trade war has become extremely difficult.
Tsim Sha Tsui is a very popular tourist district. Photo: Sam Tsang
Data from Midland IC&I showed that were only 11 transactions over HK$100 million in the first quarter of this year, down 56 per cent from October to December. It was also the lowest since the third quarter of 2016.
"Affected by headwinds such as the US-China trade war and Brexit, investors have become cautious," said Lo.
He said the tender is likely to attract top property investors, family offices and listed companies in the health care and jewellery space.
Edwin Lee, founder and chief executive of Bridgeway Prime Shop Fund, said that investment sentiment is souring rapidly as the trade war is showing no signs of ending soon.
On Monday, China said that it would raise duties on US$60 billion of US goods from June 1. This was in retaliation to the US last week raising tariffs on US$200 billion of Chinese imports to 25 per cent from 10 per cent.
Markets worldwide have taken a hit because of the escalating trade war, with Hong Kong's benchmark Hang Seng falling another 1.5 per cent on Tuesday, taking its overall loss for the month to 6.1 per cent.
"If the trade war persists for more than three months, prices of shop spaces in core areas will plummet between 10 to 20 per cent, said Lee, whose company holds a portfolio of 31 shops worth HK$500 million across the city.
The trade war has already started affecting retail property prices.
Last Friday, a 1,245 sq ft shop at 436 Shanghai Street in Mong Kok was sold for HK$18 million, 61.4 per cent lower on a per square foot basis for a property sold six months ago when a 1,200 sq ft shop in the area fetched HK$45 million.
Prices of prime street level shops in the main tourist areas of Causeway Bay, Mong Kok, Central and Tsim Sha Tsui fell last year, with Tsim Sha Tsui recording the largest decline of 6.4 per cent, according to consultancy Savills. Prices fell a further 1 per cent in the year's first quarter.
In the first three months of 2019, Hong Kong's overall retail sales have declined 1.2 per cent year on year.
A McDonald's spokesman did not rule out further disposals of its properties in the city.
"McDonald's has several properties in Hong Kong. We are not going to speculate on our plans around these properties but we will continue to evaluate our options," the spokesman said.
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 © 2019 South China Morning Post Publishers Ltd. All rights reserved.
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