All is not well in the special administrative region of Hong Kong — and not just in the stock market. Shopping, once a favoured pastime in the city, is losing its appeal. Luxury brands have been feeling the pinch for some months, and the malaise is spreading to their landlords. Last September Coach, the US fashion retailer, closed its flagship shop in Central. In November, Burberry said it would give up a floor of its main shop in Pacific Place, a mall owned by landlord Swire Properties.
Savills data show that high streets have been hardest hit. Last October, the property expert said that rents on three-year high street leases had fallen 30 to 40 per cent versus prior year levels. Still, the mall format — typically favoured by Hong Kong’s large listed landlords — was relatively resilient. Mall rents rose 2 per cent as a flight to safety in numbers kept occupancy rates firm. Souring consumer sentiment and strained mainland relations suggest the situation may worsen. Macquarie expects the downturn could last until luxury sales bottom at the end of 2016.
For some landlords, this could be in the price. Hang Lung Properties, which in the first half of 2015 earned one-quarter of its top line from Hong Kong retail leases, has fallen nearly two-thirds from its 2010 post-crisis peak. Wharf, with 70 per cent of its operating profit coming from Hong Kong retail properties including Harbour City and Times Square, has halved since 2013. The two stocks trade at their lowest historical price-to-book values in more than a decade; only during the Asia crisis have these been lower.