How Hong Kong’s latest law on rental enforcement moratorium affects the retail property sector

Landlords are likely to bear the brunt of having more vacant spaces yet again.

While the Hong Kong SAR Government proposed a new law on rental enforcement moratorium for tenants of specific sectors, CBRE believes the measure could pose pressure on both the tenants and landlords. 

According to Lawrence Wan, Senior Director, Advisory & Transaction Services – Retail, CBRE Hong Kong, to tenants, it will put certain stress on their operations and cash flow if they are going to pay back 3-month rents and the rent for the 4th month right after the restriction period. 

“As to landlords, if the tenants unfortunately close down their businesses after the period, landlords will bear the brunt of shop vacancy and economic losses. For those landlords who haven’t paid off their mortgage, the measure will also cause potential cash flow issues,” he adds.

Here’s more from CBRE:

In view of the impacts by the fifth wave of the outbreak, businesses including large retailers are facing difficulties such as manpower allocation and paying heavy deep cleaning bills for their rental space when their employees are infected. As a result, some operators rather temporarily shut down some of their stores, while most retailers are adopting a  “wait-and-see approach” at the moment and hold off any new lease and expansion plans until the situation turns clear.

We suggest landlords and tenants to proactively seek negotiations during this challenging period, and look for flexible leasing arrangements such as rental recession, leasing restructure, in order to maintain a long term relationship and sail through the pandemic together. 

On the other hand, the HKSAR Government will be rolling out the HK$10,000 electronic consumption voucher scheme starting in April, a great piece of news to Hong Kong’s retail market. While the number of COVID cases remains high, it is expected the number will peak in March and the situation should calm down afterwards. Should social distancing measures be lifted when the outbreak is under control, the spending power that has been suppressed over the past few months will return in form of ‘revenge spending’.