Hong Kong retail property: the worst may finally be over for sector, JLL says, but others suggest more pain ahead

By Cheryl Arcibalcheryl.arcibal@scmp.com

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December 21, 2020 4:05 PM SGT

The worst may finally be over for Hong Kong retail property, with rents likely to pick up in 2021, according to JLL.

The sector is forecast to report an increase in rental rates of between 0 per cent and 5 per cent, with a decline in retail sales narrowing over the past two months and uptake of vacant shops rising, the consultancy said.

Relief for the sector follows about two years of battering from the city's anti-government protests and the coronavirus pandemic. It is likely that it will buck the general downward trend in Hong Kong property, JLL said, as office rents are expected to decline by between 5 per cent and 10 per cent, while the residential market is likely to fall between 0 per cent and 10 per cent.

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The values of high-street shops are likely to rise between 5 per cent and 10 per cent from a decline of about a third this year. The rents of such shops have plunged 36.8 per cent, and in prime shopping centres by 31.6 per cent, so far this year, JLL said.

"Rents of high-street shops have returned to the market level [last seen during the] fourth quarter of 2003. We expect the retail market to bottom out in 2021, driven by mid to mass-market retailers on the back of relatively stable domestic demand, with the worst behind us," said Oliver Tong, head of retail at JLL in Hong Kong. "Sales have been cut to the bone and their next move is up. Rents of high-street shops and prime shopping centres are expected to rebound by 0 per cent to 5 per cent in 2021, on the back of a modest economic recovery and, potentially, some travel bubbles."

Russell Street in Causeway Bay used to be the world's most expensive retail space, but rents have fallen by a third to HK$1,000 (US$129) per square foot currently from about HK$3,000 in 2013.

Retail sales, however, have shown signs of recovery in recent months. Consumption fell 8.8 per cent to HK$27.4 billion in October from a year ago, but the slump was lower than the 12.8 per cent decline recorded in September, according to the latest government data. The October decline was also the first single-digit fall in the retail segment since June 2019, when the city's worst social unrest broke out. In the first 10 months of this year, retail sales fell 27 per cent.

The decline in retail sales is attributed mainly to the absence of mainland Chinese tourists, after visitor arrivals plunged 92.2 per cent in the January to October period.

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"Retail sales have stabilised in the past few months," Tong said. "Many retailers [particularly those who cater to the local market] believe it's a very good time to evaluate different opportunities. Demand and leasing activities have been spiking in the past six to eight weeks."

For other analysts, the declines in retail property rents are likely to continue, with Knight Frank estimating a 10 per cent to 15 per cent fall.

Until borders are opened and tourists are allowed back into Hong Kong, recovery in the retail segment is unlikely, according to Maggie Hu, assistant professor of real estate and finance at the Chinese University of Hong Kong. "Causeway Bay will probably be affected the most," she said. "The retail rents and ground-level shop prices will decrease further from their current low levels."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

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