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The coronavirus pandemic has hit Hong Kong’s retail sector, which has resulted in a spate of shop closures in the last several months. Photo: Felix Wong

Third coronavirus wave pushes back recovery of Hong Kong’s struggling retail property sector to mid-2021

  • Retailers will be more cautious with their expansion plans because of the new social distancing measures, says Colliers
  • Major landlords launch legal proceedings against top brands to recover millions in unpaid rent and fees
Hong Kong’s retail property market will only start to recover in the second half of next year as a third wave of Covid-19 infections forces businesses to rethink their expansion plans.
The government reintroduced social distancing rules on Monday following a sudden surge in coronavirus infections. Cinemas and other venues have been forced to shut again. Dining in restaurants has been curtailed at night, and if the situation worsens, only takeaways will be allowed until the transmission is brought under control, according to the health minister.

“It may be the middle of next year when we see a gradual recovery,” said Cynthia Ng, head of retail in Hong Kong at Colliers International. Because of “the new measures, retailers will definitely be more cautious. In the second half of this year, those expanding, like supermarkets, they’ll be more cautious.”

Ng added that retailers who have been discussing upcoming lease renewals may put their plans on hold, with rents of large shops in top shopping streets likely to feel the pressure. This is evident from Colliers’ Hong Kong high-street retail rent index, which fell to 2004 levels in the second quarter.

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Hong Kong battles third wave of coronavirus infections

Hong Kong battles third wave of coronavirus infections
In mid-May, JPMorgan had predicted that recovery of tourism-related consumption might start by October when border controls are lifted, but a recurring wave of coronavirus infections locally and across the world are bound to delay the anticipated recovery.

“Overall, since there will be hardly anybody in the streets at night, it will be rubbing salt to the wound of shops,” said Edwin Lee, founder and chief executive of Bridgeway Prime Shop Fund Management.

He added that this time around the government will take its time before it eases social distancing rules to make sure the outbreak is firmly contained.

Lee forecast an extra 30 per cent drop in rents of large shops in the second half of this year and 40 per cent for those in core districts.

Tommy Cheung, the legislative councillor for the catering sector, has slashed the overall revenue estimates for the restaurant discount programme he helped to launch. Cheung now expects revenue to come down to HK$20 billion (US$2.6 billion) from the earlier prediction of HK$35 billion following the third wave of infections.

Separately, landlords have launched legal action against some major tenants in the past few weeks to recoup unpaid rent following a spate of closures in the past few months.

Colliers’ Ng said that she had noticed a rising trend of such lawsuits. But she said that landlords take legal action only as a last resort after their discussions with tenants, that can last for more than six months in some cases, reach a stalemate.

Most of these lawsuits about unpaid rent tend to involve large shops of local brands, she added.

“All international or large brands would have a financial plan for [unforeseen situations such as the coronavirus] pandemic. When there is such a court order, it means the discussion with the landlord did not reach a satisfactory conclusion.”

Last week, Vember Lord, a subsidiary of Li Ka-shing’s flagship company CK Asset, filed a lawsuit against Swatch Group, the world's biggest watchmaker, for unpaid rent and management fees amounting to HK$4.66 million for two shops in China Building in Central, according to a writ of summons filed to the High Court.

While CK Asset did not immediately respond to requests for comment, Swatch said that “as a matter of principle, we do not comment on ongoing legal cases.”

On Tuesday, Swatch reported its first ever first-half loss of 308 million Swiss francs (US$327 million). It axed 2,400 jobs and shut 260 shops worldwide in the year to June and also plans to speed up shop closures in Hong Kong.

Wharf Reic in mid-June also filed writs of summons against Armani Junior and Abebi, which sell children’s wear at its Harbour City mall, for unpaid rents and service fees amounting to HK$3.4 million and HK$1.61 million, respectively. The three companies did not immediately respond to requests for comment.

MTR Corp in late June also filed legal action against clothing retailer Shanghai Tang, its tenant at Elements shopping centre in Kowloon, for unpaid rent and other fees amounting to HK$1.79 million. Shanghai Tang did not immediately respond to request for comment.

MTR said that as tenants face different business situations, the degree of support is reviewed and offered on a case-by-case basis. However, “we are not able to comment on the case mentioned in your enquiry because of ongoing legal proceedings.”

This article appeared in the South China Morning Post print edition as: Third wave set to delay retail property recovery
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