(June 10, 2022)
Transaction highlights
On the retail market front, while the sale is still considered relatively slow, the leasing market seems to become more active, particular popular shopping areas like Causeway Bay. Rental, however; continues its sliding mode. The latest completed deal was the ex-Burberry flagship shop space with ground floor plus first floor at the Soundwill Plaza on Russell Street with a total floor area of 5,200 sf. Burberry had this shop space for a 10-year lease started from 2012. The new lessee is a restaurant operator who is opening a Transformer theme restaurant. Rental is HKD1 million per month (or HKD192.3/sf), compared to the peak rental of HKD8.8 million in 2015 under Burberry’s lease, the rental has dropped by almost 9 times. Nonetheless, the final lease over the past few years completed by Burberry was rumoured to be HKD2 million per month, the new rental still represents a drop of 50%. When compared with “Five Guys” next door who started its lease in 2021 for HKD500K per month (or HK$74.6/sf), on just the first floor space of 6,700 sf, the “Transformer” deal seems to be less attractive. It should be noted that the Transformer restaurant has street level space which should deserve a higher rental rate but it is almost 3 times higher than next door. This seems to tell us rental for the retail market is picking up.
Brief comments
On the other side of the harbour, TST still has not recorded much of leasing actions. TST is the traditional tourist spot and it is normal to remain quiet while our door is still closed for tourists. Signs of recovery are yet to be identified. Canton Road, however; seems to see a bit of recovery where Harbour City is crowded over weekends but not substantial. Empty shops are still everywhere in TST and it is definitely one of the hard hit areas by the pandemic in Hong Kong. While Granville Road remains dead quiet with lots of vacant shops waiting for a lease, Park Lane on Nathan Road is also struggling and owners are now planning to apply to the government for converting some of the retail areas into cafes/restaurants in the hope of attracting local shoppers to improve their bottom lines. This is actually a good move too as tourists can also enjoy the food and coffee there too.
Both Causeway Bay and TST are the shopping districts for tourists but the former seems to be recovering faster. This is mainly due to the fact that Causeway Bay is more of a mixed bag with local also going there for shopping and dining. Unique shops or department stores like Sogo, IKEA and reputable restaurants are all present in Causeway Bay. TST, in the contrary, are filled with hotels and fewer iconic shops, though a smaller Sogo is there together with two K-11 malls but yet to see a significant change. Local Hong Kongers will go to TST but for other purposes such as drinks or just a walk around. TST’s image is more for tourist and designer brands rather than for local. Lights at the end of tunnel for TST may only come in the wake of tourist industry. Nevertheless, let’s hope the K-11 malls, the Park Lane “change” together with IKEA marching into the area will help to bring more local shoppers to the area while we are waiting for our door opening for tourists.
Our view is that the outlook of retail property market seems to continue to be gloomy for the rest of 2022 when Hong Kong is still in the midst of the pandemic. Sales transaction volume may drop as investors will probably hold onto their investments till they see a turnaround in prices. This will help to stablize the prices. Fire sale deals are now behind us. Nonetheless, the leasing market is a different story. Lessees may still try to rush in locking into cheaper rental deals before a rental rebound. We expect to see more closure of larger leasing deals in the next few months.
