Vacancy rate in Hong Kong’ s Causeway Bay ground level shops seen hitting 10 per cent after Chinese New Year
Slow sales, low number of tourists take their toll on Hong Kong
One in 10 ground level shops in Causeway Bay - Hong Kong’s glitziest shopping district - will become empty, the highest level since the Sars outbreak in 2003, as a slump in retail sales and tourist arrivals will force several to close down after the Lunar New Year this month.
With retailers battling to survive as consumer spending weakens in a deteriorating economy, restaurant operators are also struggling to stay afloat with an estimated 1,000 restaurants probably shuttering their business as early as July.
Michael Chik, the managing director of agency Sheraton Valuers, which focuses on retail shops transactions, expects the vacancy rate in Causeway Bay’s ground level shops would rise to 10 per cent after the Chinese New Year from the present 3 per cent level.
“We have seen more shops just being rented out to short term leases with tenants selling laisee packets, shoes and even jewellery. Their leases are probably due to expire by the end of this month,” he said.
By that time, it would significantly lift the vacancy rate in Causeway Bay once these retailers decide not to renew their lease, he said.
Hong Kong retail sales last year hit its lowest level since 2002, with a year-on-year decrease of 3.7 per cent, dragging the once-booming retail sector back to a time when the individual visit scheme hadn’t been introduced to the city, and signalng the end of its “golden era”
Jewellery, watches and clocks and valuable gifts was hit the most in 2015, with a decline of 15.6 per cent compared to it in the previous year. It was followed by wearing apparel and commodities in department stores, which contracted 7.2 per cent and 4.1 per cent respectively.
“2016 will not be a good year either,” said Thomson Cheng Wai-hung, the chairman of the Retail Management Association, as he expected the retail sales this year will still see a decline of at least 3 per cent. “The sales performance during the Chinese New year was not going well according to our members.”
Lau Hak-bun, director of Greater China at one of the city’s biggest jeweller Chow Sang Sang, which operates 72 stores in Hong Kong also expressed concerns for the period after the New Year vacation.
“For our industry, the period after lunar New Year, especially March and April is a traditional off-peak season”, he said as people don’t have much incentives to purchase jewellery after a major shopping season.
He added that the sales during New Year holidays were usually 20 to 30 per cent higher than the off-peak seasons.
Lau, who is also president of a Hong Kong jeweller association with 600 members, said they are planning to cut store numbers or sizes in the coming year to weather the economic slowdown.
However, he said even the retailers want to quit, they still have to wait until their leases end.
Despite an average rent cut of 25 per cent for store renewals so far, Lau said “we (Chow Sang Sang) might cut two to three stores this year”, adding they would most likely be in tourist districts.
Estella Ng, deputy chairman of TsE Sui Luen Jewellery (International), told the South China Morning post that it has no plan to renew its 1,000-square-foot shop at 15 Pak Sha Road, Causeway Bay when the lease expires by the end of February.
“The retail prospect remain tough in the next 12 months. We are strategically switching more of our stores from tourist districts to shopping malls along MTR railways and residential areas, eyeing more repeat sales from loyal customers,” she said.
“The rent for one store in a prime area could pay for at least two stores of the same size in a residential area. We expect the total number of stores will increase at the end of this financial year,” she said.
Chik said the monthly rental was HK$350,000, about 56 per cent lower than the landlord’s asking rental of HK$800,000.
Legislative councillor Tommy Cheung Yu-yan, who represents the catering industry, said he would not be surprised to see about 1,000 restaurants closed their doors as early as July.
“Only two months registered brisk sales in 2015 and the landlords refused to cut rents,” he said.
Legislative councillor Vincent Fang Kang, who represents the wholesale and retail sector, said some retailers have asked landlords to cut rents temporarily in a bid to reduce the financial pressure caused by slow sales.
“We have asked Financial Secretary John Tsang several times to come up with a plan to provide a lending policy with more preferential terms for small to medium-sized enterprises,” he said.
Denis Ma, head of research at JLL said there is currently one shop in the Central business district and 10 shops in Causeway Bay that are on temporary leases and will very likely be returned to the market after Chinese New Year.
The worst scenario is for vacancy rates in Causeway Bay will rise to more than 7 per cent, almost double the current 4.6 per cent, he said.