HK retail sector faces worst conditions since SARS - Savills

    Real estate advisor Savills pointed out that the retail sector has borne the brunt of the corrosive effects of the trade war and the damaging impact of the social unrest on visitor numbers.
  Looking ahead, without a resolution in sight, the current market conditions could prevail into next year and it is worth remembering that the negative impact of the Occupy Movement was felt for at least 12 to 18 months, yet day-trippers are expected to be the first to return if things were to return to normal.
  The latest data for August is grave and shows declines sharper than during SARS in 2003 with Jewellery & Watches (-47.4% YoY), Clothing, Footwear and Allied Products (-32.1% YoY) and Cosmetics & Medicines (-30% YoY) hardest hit.
  Luxury retailers' revenues are down by over 50% but neither has Food & Beverage escaped unscathed as people are choosing to dine-in or dine locally.
  Beyond the social unrest, the corrosive effects of the trade war on Hong Kong's export-driven economy continue to be felt with GDP growth narrowly skirting technical recession.
  The city's street shop rents are now down 54% from 1Q/2013 peaks while malls have generally proved more resilient. All major prime street shops experienced a double-digit decline in rent over 3Q. Causeway Bay has been hit hardest (-17.5%), mainly due to the closure or severe damage to some shops on weekends and public holidays, while retail categories popular among mainlanders have seen significant retrenchment, followed by Tsim Sha Tsui (-15.0%), Mong Kok (-15.0%) and Central (13.9%) QoQ.
  Similarly, the overall shopping center rent dropped by 14.2% during the past three months (Hong Kong Island: -13.6%; Kowloon: -12.7%; New Territories: -16.4%). Amid the doom and gloom, the positive news is Sheung Shui continues to see mainland visitors, and sales in the area are down "only" 10-20% in the absence of disruption. More locally orientated centres in Tseung Kwan O are also bearing up while local restaurants are proving relatively immune. Tuen Mun Town Plaza is holding up well, too.
  On a more positive note, given the weaker Renminbi, lower taxes and less inclination to travel, some luxury retailers are expecting record sales in mainland China in 2019.
  "It is difficult to see any upside at this point, with poor macro-economic conditions compounded by social unrest undermining Hong Kong's traditional role as a retail hub in Asia. Over 10 countries and regions have issued travel advisories for Hong Kong; several major events have been canceled or postponed, and the hotel occupancy rate dropped sharply in August to 66% from the previous month," said Simon Smith, Senior Director, Research & Consultancy.
  "But, looking ahead, it is worth noting that Hong Kong is expected to remain a key market for retailers in the region and that while the trade war has undermined local and overseas consumption, the local residential market has remained relatively resilient and interest rates remain low," he added.
  "Having fallen since 2013/14, the retail market looked like it was staging a recovery in 2018. That now appears unlikely as rents softened further in 3Q. We see some street shop landlords are offering short term and ad hoc relief in the form of rental reductions of 15-20% for three months or occasionally longer. Mall landlords are less forgiving and are tending to wait and see. At Pacific Place, Swire has proved the exception, offering 10-30% reductions on a case-by-case basis." echoed Nick Bradstreet, Managing Director, Head of Leasing.