Rents, prices of Hong Kong shops in core shopping districts could sink 80 per cent in next two to three years, property agency says

By Lam Ka-sing / | March 4, 2020 5:52 PM SGT
The rents and prices of shops in Hong Kong's core shopping districts could plunge to 2006 levels " a decline of 40 per cent " by the end of this year, Midland IC&I, an agency that has tracked shop vacancies since 2016, said on Tuesday.
Rents and prices could even drop by 80 per cent in next two to three years, if retail sales and the economy do not pick up, it added.
The agency, which deals in retail, office and industrial property, forecast that one in seven shops, or up to 15 per cent, will be vacant in the three months to September this year in the Causeway Bay, Tsim Sha Tsui and Central districts of Hong Kong, about two times the same period in 2018. These districts along with Mong Kok will see 900 shops lie vacant in the three-month period, more than a historic high of 689 vacant shops recorded in February.
"From the Sars [severe acute respiratory syndrome] epidemic to now, rents almost surged 10-fold in core districts. A drop of 80 per cent will bring [rents and prices] to that level," Daniel Wong, the agency's chief executive, said. "We are really not very optimistic about the market."
The trend will be the same for next year and the year after, with shop rents sliding gradually, he said. It is perfectly possible that rents and prices will go back to levels seen before 2003.
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In the second quarter of 2019, shops on Russell Street, Causeway Bay's main shopping avenue, was the world's most expensive retail street at US$2,745 per square foot a year, according to commercial real estate services firm Cushman & Wakefield. In 2018, the rent was US$2,671 per square foot.
Prices of shops in the four districts have, however, fallen by about 20 per cent since 2018, according to Midland IC&I. Wong, the agency's CEO, said rents in core districts had "overshot", so vacancy rates now were even more serious than during the Sars outbreak, according to his observations.
"In Causeway Bay, if you do not sell high-end consumer goods to individual travellers [from mainland China], how can you make millions a month for rent?" he said. The rents during the Sars outbreak were low, and Wong said it would take a big economic incentive, such as the Individual Visit Scheme, for Hong Kong to recover quickly in the future, but "this time, even mainland China itself is not faring well".
Shop prices and rents will "slide downwards continuously" with no end in sight, said Tony Lo, director of shops at Midland IC&I, as it remains unclear when the coronavirus epidemic, Hong Kong's anti-government protests and the US-China trade war, which has dampened global economic growth, will end. "The impact of the epidemic has not been fully reflected," he said.
Lo added that some malls had slashed rents by 50 per cent, and shops in districts other than the four major shopping areas would also see rents fall by about 15 per cent this year, as the "unemployment rate will be high and consumption power will be low".
Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis, said a bigger downward adjustment was expected, as the shock was bigger this time when compared with the Sars epidemic. "Hong Kong's once-crowded streets now look ghostly dead," she said. "The economy is trapped in a dark tunnel, from which there does not yet appear to be an escape."
Retail sales, which declined by 21.4 per cent year on year in January, according to the Census and Statistics Department, could sink by 30 per cent to 50 per cent in the first half this year, according to Annie Tse, chairwoman of the 9,000-member Hong Kong Retail Management Association. This will represent their biggest drop ever, said Tse.
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