Causeway Bay’s vacancy rate to soar as one in 10 shops stands empty
One in every 10 shops in Hong Kong’s Causeway Bay now stands empty, as three months of protest rallies have deterred visitors from the world’s most expensive shopping district, adding to the woes of a retail industry that is already suffering from a weakening yuan and mainland China’s abolition of luxury tax.
As many as 102 shops stood empty out of 1,087 in August in the district, or a vacancy rate of 9.4%, according to data by the real estate agency Midland IC&I, which noted that the tenant-free rate may rise to 11% next year, as “sentiment is worsening quickly” in the city.
“The prospect is quite critical. In my many years of dealing [with] shops, this is even worse than the Sars [outbreak] because the scale of the retail industry was not as large” during the 2003 outbreak of the severe acute respiratory syndrome, said Midland IC&I’s director Tony Lo.
More than 600 shops may empty out by next year, according to Lo’s forecast, putting hundreds of staff out of work in an economy that US bank Morgan Stanley said could contract in 2019, after tourist arrivals to Hong Kong shrank 40% in August. That prospect could drive retail rental charges down by 30%.
“There will be more than 600 vacant shops in four core districts next year”, which would be a 38% jump from August if the vacancy rate surpasses 2017’s record of 664, said Lo, attributing the slump to a combination of the “political conflicts that have persisted” with the year-long US-China trade war, depreciation of the yuan that dampened mainland visitors’ desire to spend and difficulty to hire workers under high salary cost.
“The [number of] businesses that want to lease have fallen and many have suspended their opening plans because they are unsure how long the political incident will last,” he said. “Withdrawals from committed leasing is showing signs of worsening.”
Hong Kong’s retail sales fell 6.7% in June, the fifth consecutive month of declines as protest rallies picked up pace.
The sales value of luxury goods, including jewellery, watches and clocks and valuable gifts, were particularly hit, dropping 17% to HK$5.7 billion (about $1 billion) from a year ago. An April tax cut by the Chinese government on luxury goods also kept mainland Chinese buyers at bay, as they no longer needed to hunt for bargains in Hong Kong’s tax-free shops.
The slowdown has already claimed the scalp of Prada, the Milanese luxury retailer, which would close its 15,000 sq ft (1,393 sq m) store at Plaza 2000 along Russell Street when its seven-year lease expires in June 2020, according to property agents. After Prada’s withdrawal, the landlord Early Light Group offered to slash the monthly rent by 44% to HK$5 million.
Tales of woe abound throughout Causeway Bay, an oceanfront district of upmarket shopping malls, DJI’s flagship store and an Apple retail centre.
Shopping centres are taking a drubbing as foot traffic fell, and visitors – especially the mainland Chinese big spenders – stayed away.
Chow Tai Fook Jewellery Group, one of the city’s largest and oldest retailers of gold and gemstones, said it would review the profitability of its stores while “actively looking for cuts on rental renewals, aiming to strengthen financial position and efficiently use resources”, according to a spokesman, citing “cautious consumer sentiment amid the current market uncertainties.” The jeweller operates eight stores in Causeway Bay, four of which are in shopping centres while four are street-front stores.
A bar owner along Gloucester Road on the waterfront, whose watering hole had just opened in June, said she had to close her business every weekend because of the ongoing protest rallies which have included Causeway Bay as a key battlefield.
Declining to give her name or her bar’s name, she said she had to lay off all three of her full-time staff on Aug 1, leaving only one part-time employee. She said she is struggling to pay the rent, because patrons have stopped coming for fear of being caught in the rallies, which have deteriorated into clashes between police and protesters.
Retail rents in core districts may decline by between 10% and 15% in the second half of 2019, and may deepen further to 30% by the end of next year if the situation persists, Midland IC&I said. This story first appeared in the South China Morning Post on Sept 18.