Retail real estate investors in Hong Kong demand massive discounts

Retail real estate investors in Hong Kong are seeking discounts ranging from 30 to 50 per cent compared to previous peak prices, according to data from real-estate company Savills. 

However, for now, even fewer retail landlords are willing to entertain such price reductions, preferring to hold on to their assets, according to the company.

“Volumes in both the office and retail investment markets are tapping new lows making price discovery problematic, but deals are still being done, even in these tough market conditions,” said Peter Yuen, MD, head of investment & sales. 

“A more protracted recovery will increase the likelihood of finding distressed stock at deep discounts later in the year.”

The global spread of the virus, stricter controls on borders and limits on social activities have fuelled a dramatic reduction in retail sales and visitor arrivals in the territory, which fell by 96 per cent in February. Savills said retail landlords are finding it hard to retain tenants and sustain occupancy even with deeply discounted rents and generous rental concessions. 

Prime high-street shop prices fell by 6.5 per cent during the first quarter of this year according to Savills, with Tsim Sha Tsui and Mong Kok – two shopping districts popular among mainland visitors – registering greater declines.

“The retail market peaked in 2014 and has seen a particularly steep adjustment since then,” said Sharon Fong, senior director, retail sales, investment & sales. 

“More recently the social unrest and the virus has been a perfect storm for the sector while at the same time underlying fundamentals are being disrupted by e-commerce so even after the outbreak, investors are unsure what future we will emerge into.”

Simon Smith, senior director, research & consultancy, added that while commercial investment sentiment has hit a new low in Hong Kong, China’s cautious economic recovery, the benign interest rate environment, tight short-term commercial supply conditions and further rounds of fiscal stimulus may help to sustain price levels affecting retail real estate investors in Hong Kong.

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