Hong Kong’s retail landlords consider increasing rent for the first time in two years amid ongoing economic recovery

Retail landlords have started engaging tenants in discussions on rent increases for the upcoming lease renewals, say market observers
Tenants however say that landlords must hold back on the rent increases as they were yet to recover fully from the slowdown

Hong Kong property

Lam Ka-sing

Published: 8:30am, 23 Jun, 2021

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With Hong Kong’s economic recovery gathering pace and domestic consumption improving, retail landlords have started mulling rent increases for the first time since the correction started two years ago in the wake of the social unrest.

While landlords of shopping centres and street shops seem optimistic and expect retailers to receive a boost from mainland tourists following the eventual opening of cross-border travel, tenants, however, remain cautious, with many saying that business is yet to recover from levels before the protests started in mid-2019.

Market observers, however, expect only a nominal increase in rent, noting that a stop to rent concessions by landlords is a good indication rents may be on the way up.

Retail landlords have started engaging tenants in discussions on rent increases for the upcoming lease renewals since Lunar New Year, said Lawrence Wan, senior director for advisory and transaction services in retail at CBRE Hong Kong. “These new or renewed leases might see a freeze for the first year, followed by a mild increase of around 5 to 10 per cent for the second and third years” amid a predicted recovery for the city’s economy and revival in cross-border tourism, he said.

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Hong Kong’s economy expanded by 7.9 per cent in the first three months of the year, the biggest quarterly growth in 11 years which also ended six quarters of recession. Given the economy continues to recover from the pandemic, the government expects full-year growth to be at the upper end of the forecast of between 3.5 per cent and 5.5 per cent. Hong Kong’s retail sales have also continued to recover, with retail sales in the first four months of 2021 estimated to have grown 8.5 per cent compared to the same period last year.

Some landlords think that the worst is over, said Martin Wong, head of research and consultancy for Greater China at Knight Frank.

“As retail sales have returned to positive growth, they have had internal discussions to increase the headline rents,” said Wong.

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Barrie Chan, senior director for retail leasing at Savills, said the overall rent level in Hong Kong was currently 30 per cent to 50 per cent lower than the first half of 2019. He said he expects rents of retail properties to fluctuate by less than 5 per cent this year.

Link Reit, Asia’s largest real estate investment trust with a portfolio of 9 million sq ft of retail and office space in Hong Kong, said it was optimistic about the overall market.

As the pandemic has stabilised locally and restrictions have eased, the scope for discussions on lease renewals with tenants is much better compared to six months ago as their prospects have improved, George Hongchoy, chief executive of Link Reit, said last week.

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But small business owners beg to differ, saying they were worried that landlords were jumping the gun as their operations were yet to stabilise from the disruption brought about by the pandemic.

Among them is Vincent Wong. The owner of a music centre in Tai Kok Tsui said he could be paying higher rents when his lease comes up for renewal in September.

“We had asked for a rent cut but the landlord turned down our proposal. We are now requesting them to freeze the rents for one year, but we have not heard back,” said Wong.

“We lost as much as 50 per cent of students at the beginning of the pandemic. We see students gradually coming back but the business is still at two-thirds of the pre-pandemic level.”

Additional reporting by Peggy Sito