Ghost malls: Hong Kong mini-shop owners and operators find the going tough amid retail downturn

Many shops at a mall in tourist hotspot Tsim Sha Tsui remain empty, while those in operation attract few customers

PUBLISHED : Saturday, 20 August, 2016, 12:31pm
UPDATED : Saturday, 20 August, 2016, 11:28pm

Mr Law is browsing the internet on his laptop to kill time at a 50-square-foot store selling diabetes-friendly food products in a shopping mall in the heart of Tsim Sha Tsui.

A saleslady sitting at the end of the empty hallway is playing games on her smartphone. Another has her eyes glued to a popular Korean television series.

They are among less than 10 shops operating on the first floor of the three-storey Capital shopping mall on Chatham Road. They are the lucky ones. About 200 units are empty or filled with clutter.

Hong Kong retailers look to fewer, larger stores to combat fears of an economic downturn

Occasionally, a couple of curious shoppers pop into the mall, but they quickly leave, possibly wondering whether it is open yet.

The so-called “ghost shopping mall” was bought by a commercial property investor, Wan Pak-kuen, three years ago when the city’s retail market was booming amid a major influx of mainland tourists.

Wan sub-divided the shopping centre into 705 mini-units on the three floors – each about 50 square feet – and promised a 5 per cent annual return to buyers for the first two years.

The units were snapped up by more than 600 small investors within three days of them hitting the market.

But the shop owners had no idea at the time how fast things could deteriorate in the following years.

Now they are struggling to find tenants amid Hong Kong’s steepest retail downturn since 1999.

Law the retailer, said the sub-divided shop he was sitting in was his friend’s property, which cost HK$6.5 million back in 2013. After months of futile efforts to hunt for tenants, his friend gave up and allowed him to use the space for free.

While it is unthinkable for malls in Tsim Sha Tsui – one of the most popular shopping destinations for tourists – Law’s friend is just one of the many small landlords who bet on the wrong horse.

“Of course it is a very disappointing investment,” said Mr Lee, one of the landlords. He spent more than HK$4 million in 2013 for a unit on the second floor.

Lee’s attempt to find tenants has been fruitless, even though he is charging only HK$3,000 a month with flexible terms and a rent-free period.

Hong Kong business downturn worse than during Sars, lawmaker Michael Tien warns

An economist said the downturn, the smaller-than-usual units and individual investors’ lack of experience in running units in shopping malls made their lives difficult.

“It is not easy to attract customers to such small shops,” said Eddie Hui Chi-man, a professor specialising in real estate studies at Hong Kong Polytechnic University. “Fragmented ownership also makes it almost impossible for the shopping mall to launch promotional events as a whole during holiday seasons.”

Hui said small investors tended to be “short-sighted”, as they were tempted by the 5 per cent annual return and underestimated retail market volatility and the difficulties in running a unit in a shopping mall.

Instead of waiting for the death of their businesses, the amateur landlords formed an alliance to collectively promote the mall. Some walls were torn down to make way for bigger shops.

“We want to offer more choices in terms of shop size to clients,” said Margaret Chan, a landlord and founder at the alliance.

Zero commission fees, rates and government rent included and a flexible rental period – these were terms listed in the alliance’s leaflets.

“The former landlord did not make any effort to attract tenants in the past two years. We have to rely on ourselves,” Chan said.

She said most landlords were from the middle class, with a quarter of them mainland Chinese who bought the units on shopping trips to Hong Kong in search of Louis Vuitton handbags, diamonds and gold necklaces.

Despite the high vacancy rate and the gloomy outlook, Chan said the landlords still had faith in their investments.

“We are not worried. The most valuable thing in Hong Kong is land. After all, this is Tsim Sha Tsui.”

However, four landlords were forced to sell their units by public auction this year as they failed to pay their bills. One unit was auctioned at a price 60 per cent lower than the original price.

The outlook for tenants, however, does not look bright. JYS Korea Cosmetic Companyis planning to leave the mall this month – only three months after it opened.

The Korean cosmetic retailer rented 12 units on the second floor and was disappointed at its sales in the short period.

“There is no business at all. We are going back to Korea,”a manager who asked not to be named told the Post.

Subdivided shops have become a popular investment vehicle for small investors, thanks to their low capital threshold.

Big Day, a Chinese restaurant which was turned into a shopping mall in Tai Po, is the latest example.

The three-storey mall was last year divided into 220 units with a usable area of around 30 sq ft. They were mostly sold to people in the neighbourhood for between HK$1.4 million and HK$2.8 million.

The Tai Po mall has so far fared better than the Tsim Sha Tsui facility because of substantial rent discounts. About 70 per cent of the units were taken in the past two months – mostly by small business operators. The cheapest unit cost just HK$1,600 per month and a second unit taken by a single tenant would be offered at a 50 per cent discount.

But sales have been disappointing.

Kitty Chow, who opened a clothing shop occupying two units on the second floor, said the revenue in the first month was not even enough to cover the HK$4,200 monthly rent .

“I haven’t made a profit yet,” Chow said, adding there were far fewer customers than she expected.

Chow admitted she was tempted by the low rents, but was concerned about a potential rise when the one-year lease expires.

“I was told by an agent the landlords of this shop will decide whether to raise the rent next year, but I haven’t even met them,” Chow said.

Some economists have recently said the worst of Hong Kong’s retail slump is over, but the tenants at the two subdivided shopping malls have yet to see the light at the end of the tunnel.