Hong Kong’s retail rents to bottom out in H1 2021

Landlords are reconciled to market conditions and “turnoveronly” deals for 12-month periods

Recovery in tourism will reinvigorate Hong Kong’s retail market

Retail rents in Hong Kong will likely bottom out in the first half of 2021 following a massive decline in 2020, as the recovery in tourism will reinvigorate in the city’s retail market, according to a report from Savills.

Retail sales fell 27% YoY form January to October, and retail unemployment hit 9.3% in September. With little capex for expansion retailers are sitting tight until leases are due, as landlords are not accepting surrenders, when many are opting to hand back the keys.

However, food and beverage (F&B) stores continued to take up space as landlords are keen to sign up crowdpulling concepts, often local, to support footfall in major malls. Beyond the sector, activity levels are very low and the market remains frozen with only a handful of deals concluded in Q4.

Thus, landlords are now mostly reconciled to market conditions and we hear of “turnover-only” deals for 12-month periods, the report said.

With key shopping districts and most malls facing sharply higher vacancies, short-term tenancies of six months or so have been on the rise.

Their typical tenants include sellers of masks, red packets, groceries and frozen meats, concepts which work best in densely populated residential areas. Whilst on the street, landlords have also been opening their doors to local restaurants.

Amidst the fourth wave of the pandemic and a sluggish leasing market, rental values also tumbled in Q4, with both prime street shop rents and base rents of major shopping centres falling 5.9% QoQ. Prime retail streets such as Queen’s Road Central in Central and Percival Street in Causeway Bay have even seen vacancy as high as 20% in recent months.

Nevertheless, the tourism market is expected to recover gradually over the next three years when the global pandemic passes. With an extremely low base in 2020, visitor numbers are projected to rebound by 150% in 2021 to around 9.8 million.

Based on data during the post-SARS and post-Global Financial Crisis periods, this will be followed by a 123% rise in 2022 to around 22 million, and then 92% to 42 million when the overnight visitor and long-haul markets start to pick up in earnest.

With the return of tourists and their shopping spending, retail sales is tipped to grow 5.5-15.1% from 2021 to 2023. FocusEconomics also expected that the local labour market will improve gradually once the economy recovers from the damage of the coronavirus.

Savills expects a further drop in prime street shop and shopping centre rents by 2% to 5% in 2021. With the recovery of the overnight/long-haul visitor market and their shopping spending, prime street shop rents may bounce back by 7%-10% and 20% in 2022 and 2023, respectively, whilst shopping centres will recover by 5%10% per annum over the same period.

Professionals seek flexible workspace that values wellbeing: Hays

Professionals are now prioritising flexible working options and employee wellbeing as they look to the new era of work, according to the latest report by recruitment expert Hays.

Conducted to over 9,000 working professionals across Asia, the survey found that respondents are looking at being part of an organisation that values employee wellbeing not only as a crucial element to flexibility, but purpose and connection to their role as well.

In Hong Kong, these results are mirrored with remote working options emerging as a top priority for professionals when seeking a new employer in the post-pandemic future, and employee wellbeing as the definition of purpose in the new era of work.

Majority of respondents (87%) in Hong Kong said remote working options became their top priority following the pandemic, followed by flexible hours (78%) and employee wellbeing programs (67%).

Meanwhile, 69% of organisations in Hong Kong currently provide remote working options now, and 57% offer flexible hours.

Whilst most of them (89%) said work-life balance was important, around 48% stated that they would be willing to compromise for a feeling of purpose or connection to their role.

“The seismic shift in the value placed on employee wellbeing will define the new era of work and beyond. Along with the rising sentiment in favour of employee wellbeing, the resounding call for remote and flexible working options, which are also important aspects of work life balance, is unlikely to dissipate in an increasingly volatile world,” Hays Hong Kong regional director Jack Leung said.

Respondents are looking at being part of an organisation that values employee wellbeing