In a commercial rental market beset by high vacancy rates, many Hong Kong landlords feel stuck between a rock and a hard place: giving tenants a break on rent makes it harder to pay mortgages and threatens asset value, but holding the line on rent runs the risk of driving tenants away.
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In this difficult environment, are landlords just being stubborn? It’s complicated, according to agents and analysts.
Retail sales in the city contracted for 14 straight months until May, when they expanded by 2.4 per cent to HK$31.3 billion (US$3.9 billion). The slump has wreaked havoc on retailers and brands, many of which have been forced to reduce their presence or exit the city altogether.
Cinema operators and food and beverage operators were among the hardest hit. For example, Grand Ocean Cinema in Tsim Sha Tsui and Taipan Bakery, the inventor of so-called snow skin mooncakes, closed last month after 56 years and more than four decades, respectively.
The vacancy rate in prime shopping centres hit a record high of 10.5 per cent at the end of June, as rents slipped 3.4 per cent in the first half of the year, according to JLL. High-street shops saw vacancy stabilising at 10.5 per cent, while rents dropped 2.3 per cent.
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With about 600,000 sq ft of new prime retail space scheduled for completion in the second half of the year, vacancy rates in prime shopping centres were likely to rise, dragging rents down by between 5 and 10 per cent this year, the property consultancy predicted.