19 July 2018
Retail property rents overall could drop 5 percent this year in Hong Kong, according to an expert. Photo: HKEJ
Retail property rents overall could drop 5 percent this year in Hong Kong, according to an expert. Photo: HKEJ

Landlords in prime HK shopping districts wake up to new reality

Take a stroll along Lockhart Street behind SOGO department store in Causeway Bay, and you’ll notice that quite a few retail spaces there are lying empty and looking for tenants.

As mainland visitors are buying less, the retail industry in Hong Kong is shrinking. The city’s retail sales last year dropped for the first time in 10 years.

Luxury brands are taking a step back and refraining from paying high rents in prime shopping districts such as Causeway Bay and Tsim Shai Tsui.

As the retail sector faces some uncertainty, landlords are adjusting their rental targets. Shrewd commercial property investor Lee Ser Siu-hung, the sister-in-law of the tycoon Lee Shau-kee, is one of them.

Last year Lee acquired a 3,000 square feet duplex shop in Lee Garden Road for HK$250 million (US$32 million), confident that the commercial rental market will stay strong.

But she discovered recently that getting a tenant is not so easy. She has lowered her asking price a couple of times, but is yet to find any taker.

Due to the market conditions, Lee is now again lowering her price, according to Apple Daily. She is also willing to be flexible by leasing out the ground floor and second floor separately. The street level shop is being offered for HK$800,000 a month but that is negotiable.

Though Lee is willing to accept a lower yield of around 5 percent, compared to her previous target of over 7 percent, the current asking rate is still more than double what the last occupant paid.

Optical 88 was the tenant of the street-level shop before. The monthly rent was HK$380,000 at that time, but the eyewear retail chain didn’t renew the tenancy when the rental agreement expired in 2013. The shop has been lying vacant since then.

Meanwhile, other landlords in the area have shifted to short-term leases of twelve months or less.

In 2013, the owner of a shop located in Percival Street raised the rent by 200 percent to HK$600,000 after luxury watch maker Tissot gave up the space. But he couldn’t find any taker for a long time, forcing him to revise to his target.

The shop was finally leased to a lai see packet seller recently for a monthly rent of HK$200,000.

The downward trend of commercial rentals may have just begun.

According to commercial real estate consultancy CBRE Hong Kong, vacancy rates will keep climbing in the prime districts.

Joe Lin, the group’s executive director, predicted that retail property rents overall will drop 5 percent this year. For second-tier shops, rents may even tumble 10 percent to 20 percent compared to last year.

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EJ Insight writer

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