According to the Hong Kong Retail Leasing report for Q1 2022 released by Savills on 6th April, retail rents in Hong Kong have registered a decline of five percent in the first quarter.
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Leasing activity in the first quarter was subdued with only a handful of F&B deals taking only a small amount of space. Rents in both the prime street shop and major shopping centre segments have backtracked and registered a decline of five percent in Q1 2022.
Although major shopping centre landlords are generally willing to offer rental concessions and/or relief measures, a few are standing firm according to Savills.
Savills commented the local retail market has entered a ‘mini-ice age’ as businesses have been forced to pull down their shutters either temporarily or permanently, especially for the F&B and daily necessity trades. This has put the early, tentative recovery in the leasing market which we saw at the end of 2021 on hold.
The city’s retail sales registered their first monthly decline in February 2022 since recovery in February 2021. The combined sales value in January and February 2022 fell by 4.9 percent over the same period in the previous year, and the unemployment and underemployment rate in the retail sector bounced back to 6.9 percent and 3.9 percent in February 2022 from 5.4 percent and 1.9 percent recorded in December 2021.
Savills also indicated that an increasing number of multinational companies plan to or have already relocated their regional headquarters from Hong Kong because of the government’s strict pandemic protocols and restrictive travel controls. According to a recent survey conducted by European Chamber of Commerce Hong Kong in January/February 2022, half of the 260 affiliates of their national chambers surveyed plan to fully or partially relocate. International luxury brands, who have suffered more than most from the absence of mainland tourists since 2020, have also begun to reconsider their network planning in the SAR and are eyeing up other mature and emerging sub-markets in the region.
CBRE Group also released its Hong Kong Market Review for the first quarter highlighting that the recovering market momentum gained from 2021 has significantly slowed down in the first quarter of 2022. Leasing sentiment weakened as business operations were severely disrupted during this period.
According to CBRE, high-street shop vacancy rebounded by 0.8-ppt quarter-on-quarter to 15.2 percent, with that in Tsim Sha Tsui witnessing the sharpest spike, rising 4.3-ppt quarter-on-quarter to 20.3 percent. Vacancy in Central and Mong Kok declined as more landlords offered shorter leases and flexible lease terms.
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“The severe impacts of the surge in COVID-19 cases with many shops and restaurants shutting down temporarily in February and March, retailers and F&B operators have shown very limited intention to explore new options and proceed with lease negotiations. Inspection activity and deal signing have been put on hold in most cases. Rental decline resumes after stabilizing across most of the time in 2021. With social distancing measures set to relax from late-April and the first batch of HK$10,000 e-voucher distribution, the retail market would expect a stronger rebound in the second half of the year,” said Lawrence Wan, Senior Director, Advisory & Transaction Services – Retail, CBRE Hong Kong.