Stores Stand Empty as Hong Kong Protests Scare Shoppers Away

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(Bloomberg) -- In Hong Kong’s usually bustling Causeway Bay shopping district, one in 10 stores now stand empty.

The months of often violent street protests have scared away tourists -- Chinese tour groups are down 90% from a year ago -- and kept locals at home.

Stores Stand Empty as Hong Kong Protests Scare Shoppers Away

Protests See Chinese Tourists Ditch Hong Kong for Golden Week

And landlords are starting to feel the squeeze. Retail rents have dropped to a five-year low, and are expected to decline further. Meanwhile, the number of leasing deals last month sunk to the lowest since 2008, according to real estate agency Midland IC & I Ltd.

Stores Stand Empty as Hong Kong Protests Scare Shoppers Away

“It’s the worst in history,” said Tony Lo, a director at Midland, who forecasts street-front rents could fall 10%-15% this half. “It’s easier to ask for bargains now as landlords are more willing to offer discounts.”

Shares of big retail landlords have also taken a hit.

Wharf Real Estate Investment Co. and Swire Properties Ltd. have plunged more than 20% since the protests erupted in early June, more than double the Hang Seng Properties Index’s decline.

Stores Stand Empty as Hong Kong Protests Scare Shoppers Away

Both are on the front line of demonstrations -- Wharf owns the city’s biggest shopping center, Harbour City in Tsim Sha Tsui, which is frequented by mainland tourists who are sometimes targeted by protesters; and Swire owns Pacific Place in Admiralty, where many protests have taken place.

What Bloomberg Intelligence Says:

“Mall occupancy rates in Hong Kong could be at risk of declining as the city’s social unrest has merchants turning cautious. Retailers are likely to scale back their expansion plans and may even mull consolidation as protracted anti-government protests stifle consumer spending, plunging more businesses into financial distress.”

-Michael Tam, real estate analyst

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Swire just last week said it would offer temporary rental concessions to Pacific Place tenants during “this challenging time.” On Causeway Bay’s Russell Street -- the world’s most-expensive retail strip -- Prada SpA’s landlord is offering to slash the rent by 44% as the Italian fashion brand plans to close the store when its lease expires in 2020, the South China Morning Post reported.

“Causeway Bay used to be the main shopping spot for tourists,” said Helen Mak, head of retail at Knight Frank LLP. “When tourists aren’t coming, that would affect businesses. Shops then have to close.”

Retailers are also being hit by the U.S.-China trade war and the weakening yuan -- which makes shopping in Hong Kong more expensive for mainland tourists.

The vacancy rate in the city’s major shopping districts rose to 6.5% in August, up 0.9 percentage points from a year earlier, data from Midland IC & I show.

©2019 Bloomberg L.P.

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