NewHong Kong mall landlords shift to charging base rent
Gradual change in policy attributed to retail sales slump on declining mainland tourist spending
Landlords of shopping malls are gradually shifting to charging tenants a base rent as a way to maintain stable rental income amid a decline in spending by mainland Chinese tourists, industry experts say.
As Hong Kong retail sales flourished in the past 10 years, it was common practice for shopping centre operators to charge a base rent that shifted to a turnover rent once sales exceeded an agreed threshold.
"In general, retailers selling luxury items are paying turnover rents as they have benefited the most from the influx of big spenders from mainland [China]," said Thomas Lam, the head of valuation and consultancy at Knight Frank.
Most luxury brands occupied prime locations such as the first and second floors of shopping malls, he said. He attributed landlords' shift in policy to relying more on base rent to the fact that Hong Kong retail sales were on a downward trend.
To avoid volatility in rental income, he said developers started to adopt a base-rent policy several years ago in response to softening retail sales.
Helen Mak, a senior director at Colliers International, said most shopping centre landlords would continue charging either base rents or turnover rents, whichever was higher.