Hong Kong retail rents yet to bottom out as landlords offer deeper discounts

Landlords of street level shops in prime locations in Hong Kong are slashing rents significantly in a bid to woo retailers whose business is suffering from dwindling tourist traffic, signalling that the market correction is not yet over.

Some shops in the retail complex Laforet in Causeway Bay are reportedly being offered for lease at rents that are up to 78 per cent lower than the previous lease prices, according to industry experts.

In one case, a 458 square foot ground level shop in Laforet was leased for HK$120,000 a month on a short term lease, down from the pervious lease of HK$550,000.

“Some retailers selling jewellery and watches have been forced to downsize their operations in response to fewer tourists visiting Hong Kong,” said Terence Chan, head of retail at JLL in Hong Kong.

Adding fuel to the fire, the ongoing slump in mainlander spending would also hurt sales of luxury retailers, he said.

From January to April visitor arrivals fell 8.8 per cent to 18.42 million from a year ago, according to data from the Hong Kong Tourism Board. Mainland tourist numbers fell 12.6 per cent to 13.88 million during the period. Overnight visitor arrivals from the mainland, the major clients for hotels in Hong Kong, declined 8.5 per cent to 5.41 million.

Chan said the average spending for tourists has slumped to HK$2,000 a day, from the previous HK$6,000.

JLL forecast retail rents could tumble by 10 to 15 per cent for the full year after they fell 22 per cent in 2015. In the first half of this year rents have already declined 10 per cent.

Chow Tai Fook , the city largest jeweller, has agreed to renew its shop at the China Building in Central at a monthly rent of HK$1.8 million, about 55 per cent less than the previous lease.

Jewellery and other valuable gifts used to make up a quarter of the city’s total retail sales at their peak in 2013, but that figure dropped to 18 per cent last year.

A Chow Tai Fook company spokesperson confirmed that the lease for the China Building store has been renewed, without providing further details.

Joe Lin, executive director of retail service at property consultancy firm CBRE, expects landlords owning shops in secondary locations would still be under pressure to cut rents.

“Although these shops are in Causeway Bay, their location is still away from main streets and there is less foot traffic. These shops have been empty even before the market correction and have to offer steeper discounts to get tenants,” he said.