Buildings made of concrete and steel are feeling the impact of the estimated 6,000 rounds of teargas released on the streets of Hong Kong in recent months, as a newly released report shows that the city’s descent into a police state has driven the city’s retail real estate market into declining health.
The value of new retail leases signed in Hong Kong during October totalled just HK$23.36 million ($2.99 million) — down 43 percent from September’s HK$41.39 million total as only 215 new agreements were signed for shop space during the month, according to a report released this week by property agency Centaline Commercial.
The figures depicting declining interest in renting retail space come as large numbers of Hong Kong’s young people since June of this year have abandoned trips to the cinema or bubble tea breaks in favour of weekends filled with street protests, first of a controversial extradition bill and more recently of police brutality and government indifference to local concerns.
Retail Slides to Asian Financial Crisis Level
The volume and value of retail leases in Hong Kong have been declining since the city’s streets erupted into protests in June this year, according to Wong Wai Kee, a director of Centaline Commercial.
Just 215 retail leases were recorded in the month of October, according to Wong, or around 23 percent less than the quantity of deals signed in September and 42 percent down from the number agreed to in the same month last year.
The city’s shopkeepers and international brand managers are reacting to a simple lack of shoppers on the street, according to government statistics released this month. Retail sales in Hong Kong during September fell to HK$29.9 billion — down 18.3 percent compared to the same month in 2018.
In the third quarter, retail sales volume fell 19.5 percent in Hong Kong compared to the same three months in 2018, with the government indicating that the drop in activity was only surpassed by the decline in sales recorded during the third quarter of 1998 when Hong Kong was suffering the worst of the Asian financial crisis.
Rents Head Downhill
Hong Kong has, for the last several years, reported some of the world’s highest retail rents as brands and shopkeepers competed to pull in mainland spree-buyers and cashed up local consumers. Now with the mainland economy slowing, however and weekly demonstrations inviting riot policy to turn shopping hubs such as Tsim Sha Tsui and Causeway Bay into teargas target ranges, leasing rates are heading downhill quickly.
Harbour City in Tsim Sha Tsui saw retail volumes fall at the steepest rates during the third quarter — falling 35 percent compared to the same period last year, while Times Square in Causeway Bay saw turnover slide by 30 percent, according to local media reports.
The falling sales have also brought down rents, with the city-wide average falling to HK$66.40 per square foot per month in October, according to Centaline Commercial’s figures. That rental level was down from an average of HK$70 to HK$80 per square foot over the last two years, with last month’s average being the lowest the agency has reported since July 2017.
The local agency indicated that landlords are slashing rents still further to attract tenants, with Wong citing the case of shop in Kowloon’s Yau Ma Tei area where the owner reduced the leasing rate by 42 percent to bring in a new tenant. With a pharmacy having already vacated the 446 square foot (41 square metre) venue, the landlord had agreed to lease the premises at HK$58,000 per month — down from the HK$100,000 paid by the previous tenant.
The agency director also cited a trend of retailers surrendering premises as their sales evaporate. Wong recounted how a Taiwanese bubble tea shop, which had leased a 500 square foot space at 96 Yen Chow Street in Sham Shui Po had walked away from their HK$70,000 per month lease a full year before its October 2020 expiry, after business dried up.
Hong Kong Economic Slide Continues
The analysis from Centaline was released less than a month after UK-based Savills produced a report on the third quarter in which the consultancy described figures for August as indicating a “grave” situation of Hong Kong retail.
Savills’ citywide index of rental rates for street shops in Hong Kong plunged 54 percent in the third quarter compared to their peak in the first quarter of 2013 and were down an average of 15.4 percent in the third quarter of this year, compared to the preceding three month period.
During the third quarter Hong Kong fell into a recession for the first time since 2009, according to official government data, with the latest statistics showing gross domestic product contracted 3.2 percent between July and September from the second quarter, which was down 0.4 percent from the preceding three month period.
Tourist arrivals to the city plunged 34.2 percent in September compared to the same month last year, with visits by mainland Chinese, who account for 78 percent of all visitors, down 35 percent.