Hong Kong’s biggest shopping centre Harbour City, owned by Wharf Real Estate Investment Company, has yielded to pressure from tenants, backing down from its earlier demand that they renew their lease for 18 months to avail of the rent concessions.
However, dozens of tenants have decided against signing the letter as they would have to return the rent concession in full if they fail to abide by the terms of the offer that includes clearing all “outstanding rent, charges and any arrears accrued up to 31 August 2020 before 15 September 2020”.
The new terms spelt out in a letter sent to tenants earlier this month cuts the duration of lease to 12 months, while the rent concessions for July also vary, depending on their sales, as opposed to a fixed 40 per cent discount for May offered in a letter sent earlier.
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“If you have signed and returned to us the offer letter for rent concession for the month of May 2020, the period of 18 months … of that letter shall be deemed to have been amended to 12 months from the expiry date of your current tenancy at the then market rate to be mutually agreed between you and the landlord, provided that the offer contained in this letter is accepted,” reads the letter seen by the Post.
Harbour City and Wharf Reic did not immediately respond to a request for comment.
Requiring tenants to comply with terms when offering rent concession “is probably specific to Hong Kong”, said Luca Solca, senior research analyst of global luxury goods at Bernstein. The landlord has sent this letter in a bid to defuse the risk of brands closing shops, he added.
Wharf Reic’s flagship property in Tsim Sha Tsui sparked a controversy when it sent a letter to tenants in July stating that they could receive rent concession provided they accept their terms. It also separately sued tenants for rent arrears, sent bailiffs to seal off shops of those who failed to pay full rent, resulting in vacancy rates climbing up as a retail crisis piled pressure on tenants.
Hong Kong’s economy has contracted in the past four quarters, marking its worst recession on record. The Covid-19 pandemic, as well as months of social unrest last year, have choked tourism and undermined the government’s efforts to revive activity.
Without the power of tourist dollars, Hong Kong has recorded steep declines in retail sales for 18 straight months, according to official statistics. They amounted to HK$187 billion (US$24 billion) this year through July, or HK$26.7 billion a month, compared with an average of HK$36 billion a month in 2019.
At Harbour City, retail revenue declined by 30 per cent and operating profit by 33 per cent year-on-year for the first half ended June, according to Wharf Reic’s interim results. With the pandemic slowing down new investment, Harbour City’s occupancy rate stood at 90 per cent at the end of June, compared to 96 per cent a year earlier, Wharf Reic said.
The other terms spelt out in Harbour City’s letter stipulate that those signing up to the new offer “must not terminate” tenancy and “have no plan to move out or to cease operation before 28 February 2021”.
The percentage of concession offered for the July rent is likely to be lower for most brands, sources said, adding that the landlord is unlikely to offer any concession for August as sales improved.
More from South China Morning Post:
- Rising vacancy, sliding rents in Hong Kong signal cracks in world’s most expensive retail strip to persist into new year
- Hong Kong retail stand-off turns nasty with landlords suing tenants to recover arrears as recession deepens
- Hong Kong’s biggest shopping centre Harbour City offers rent concessions and shocks tenants with lease renewal terms