Hong Kong retail recovery dampened yet again by recent COVID outbreak 

Restaurants with over 20,000 sq ft of space could be at risk 

The resurgence of COVID-19 infections in the community prompted the government to re-impose stringent social distance restrictions in recent weeks. According to Knight Frank, the epidemic has repeatedly delayed border reopening plans, and retailers missed the important consumption seasons of Chinese New Year and Valentine’s Day. 

Here’s more from Knight Frank:

In addition, starting from 24 February, only vaccinated people will be permitted in shopping malls, supermarkets and other specified premises under a “vaccine pass” scheme. All these measures have severely dampened consumer sentiment and impacted footfall, and will take a heavy toll on the retail sector. 

Under the current social distancing rules, F&B sector is among the most affected. While there was some light at the end of the tunnel by entering 2022, the current COVID outbreak has significantly dampened not only their short-term performance but could drive some operations out of business, especially for those large-scale restaurants at over 20,000 sq ft. Based on the experience in the previous few waves of pandemic, there is reason to believe that restaurant receipts could drop over 30% during the current outbreak, despite the partial adaptation to delivery operation. 

Being different to the previous waves of pandemic, sales performance in community malls are not suffering less as the current outbreak is spreading across the city. Community lockdowns and compulsory testing have significantly lowered the footfall in most shopping centres in both core and non-core areas. Necessity retailers are the only ones who manage to sustain their business, but not those who take up significant space, drive high-value sales and boost rents. 

We believe that the latest round of measures under the Anti-epidemic Fund will provide some timely relief to retailers. Moreover, major landlords such as MTR, Link REIT and Swire Properties are going to offer rental subsidies to help tenants of premises affected by the pandemic. 

However, given the severe epidemic situation, retailers are still in dire straits and potential tenants are not confident in opening new stores. In battling the challenging environment amid exceptional uncertainty, landlords and tenants should work together and try to find a mutually beneficial solution. For instance, onlineoffline strategy could be further extended to landlords’ participation, while tenants’ involvement in placemaking could be raised further.