Hong Kong retail rents in 2016 continued in a downward trend from 2015 – with the city’s four prime districts – Central, Causeway Bay, Tsim Sha Tsui and Mongkok – the most adversely affected, according to a market report by Everbright Property.
According to data from the Rating and Valuation Department and published by Everbright, the private retail index for Hong Kong only dropped 0.8% from January to November 2016. However, retail rents for the four prime shopping districts fell by average 22%, due to an excess of supply over demand for shops.
Collectively, rent cuts were sharpest in the second and third quarter of 2016, as most tenancy agreements were made in the corresponding quarters of 2013 – a time when Hong Kong rents were at their peak. According to the report, the renewal of some leases required a 50% discount by landlords on the original contract agreed to by the retailer. Otherwise, the lease was terminated. By the fourth quarter, rents cuts drops were flatter, report authors added.
Major shopping strips or first-tier streets, recorded the biggest rental loss in 2016, collectively dropping 36% on 2015, or 50% compared to the peak 2013 year.
By strip, Russel Street rents fell 23% on 2015, to HK$1,025 per square foot, a 49% drop on 2013; Queen’s Road Central fell 38% to $440 per sq ft, a 60% drop on 2013; Canton Road plunged 58% to $917 per sq ft, also a 58% drop on 2013; and Sai Yeung Choi Street South dipped 24% to $581 per sq ft, or 33% compared to the peak year.
There was a direct correlation to a decrease in retail spend and retail rents in 2016, according to report authors.
“Under poor retail sales figures, retailers were conservative, limiting leasing offers received by landlords. As a result, landlords had no choice but to renew the tenancies with existing tenants and thus increased room for tenancy renewal negotiations,” said report authors, when commenting on the findings.
The proportion of renewal cases were higher than new lease contracts across the first-tier streets, with landlords preferring to have a quality tenant at discounted rental rate, than none at all.
An example of this was Tissot. The watch brand renewed its tenancy for the shop on Haiphong Road on Tsim Sha Tsui for HK$550,000 per month in 2016 – almost 40% cheaper than the previous rent agreement.
On Friday, the Hong Kong Retail Management Association estimated the city’s retail sales will fall 3-4% on the year in 2017 – a narrowing on the 8% drop recorded in 2016.
Last year, retail sales fell to 437 billion Hong Kong dollars ($56.3 billion), marking three years of decline and the worst full-year slump since 1998.