The vacancy rate of street level shops in Hong Kong’s four major shopping districts – Causeway Bay, Mong Kok, Central and Tsim Sha Tsui – has reached a record high of 12.6 per cent and is expected to climb to 14 per cent in the first quarter next year, as the retail sector sees no respite from the economic downturn brought about by the coronavirus pandemic, according to Midland IC&I.
And as the vacancy rate mounts, shop rents in the core districts are likely to sink by 40 to 50 per cent this year alone, taking it back to 2006-2007 levels, it added.
A total of 945 shops were empty in the four districts compared to the record low of 408 or 5.6 per cent reached in the third quarter of 2018, a report by the commercial property agency on Tuesday showed. The survey tracked 10,250 shops in 221 streets across five districts in July and August. Across Hong Kong, 8 per cent or 4,000 of the nearly 50,000 street level shops were empty.
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“The market has not seen the bottom,” said Daniel Wong, chief executive at Midland IC&I. He said that the retail industry is undergoing a structural change and that the peak of the market has already passed, adding that a lot of shop owners still refuse to accept the reality and are still asking for prices above the prevailing market rates.
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.
Of the four main districts, Midland IC&I expects Causeway Bay to bear the brunt of closures, expecting one in five shops to stay empty by the first quarter of next year. The vacancy rate in the area stood at 8.1 per cent in the third quarter of 2018.
Wong said that the only way for retailers to survive is by offering them rent concessions, echoing the views of the Hong Kong Retail Management Association, which wants landlords to cut rents by 30 to 50 per cent for half a year, charge rent as a percentage of sales and offer longer rent-free period.
“If the tenants are all gone, and the streets are empty, it is not good,” said Wong, adding it is difficult to find replacement tenants now. He said that many businesses could close after the government employment subsidy programme ends in November if the market does not show any signs of a recovery.
“The increase [in vacancy rate] is the fastest ever,” said Thomas Chan, research analyst at Midland IC&I, which started the survey in 2016.
Midland said that the government’s restrictions on dining out to contain the Covid1-9 outbreak took a toll on restaurant businesses. The vacancy rate in Central’s food and bar streets such as Soho, Lan Kwai Fong and Wellington Street stood at 26.1 per cent. Meanwhile, Granville Road in Tsim Sha Tsui had the highest number of vacant shops at 37 vacant, or 34.6 per cent of the total.
Tony Lo, director of shops at Midland IC&I, said that the retail sector is still to see the light at the end of the tunnel.
The market outlook is “still pessimistic” as “the mega correction still continues”, he said.
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