Former Hong Kong leader Leung Chun-ying has urged landlords to lower rents as the city鈥檚 commercial property vacancy rate hit a 40-year high and retailers cried foul over being forced to close businesses to stem losses.
In his social media post on Thursday, Leung pointed to the rate of vacant commercial buildings in the city, which reached a record high of 11.8 per cent by the end of 2024.
He said that soaring rents had forced restaurants to have extremely cramped washrooms and to store ingredients outside toilets, leading to unpleasant experiences compared with Shenzhen, where each dining area has its own stand-alone facility.
His remarks were made as some political parties, according to sources, voiced tenants鈥 woes and proposed countermeasures during the ongoing public consultation on Chief Executive John Lee Ka-chiu鈥檚 2025 policy address.
鈥淟andlords cannot let a property sit empty and refuse to lower the rent just because you are afraid of bank repossession. Sooner or later, you will have to face the reality of high vacancy rates and falling market rents,鈥 Leung said.
鈥淭hey cannot just wait for luck to change, nor can they fight against the market. They need to adjust to current market prices and decisively cut rents 鈥 just as they raised them decisively when the market was booming.
鈥淧rocrastination will only make businesses dry up.鈥
Leung cited property agency Midland IC&I鈥檚 index which showed that about 900 stores were empty in four core districts 鈥 Causeway Bay, Central, Tsim Sha Tsui and Mong Kok 鈥 resulting in a vacancy rate of 12.1 per cent.
He said the market economy did not depend on an individual鈥檚 will.
Leung also added that society should adapt to the structural changes in the retail market, or it would otherwise face increasing pressure.
Kathy Lee, head of research at commercial property agency Colliers, observed that retailers had become more cautious and focused on renting shops on first-tier streets in prime districts, rather than compromising and taking up spaces with less traffic.
鈥淭here is still room for rent adjustments to improve the overall retail environment 鈥 but they may not necessarily reduce the high vacancy rate in second- and third-tier streets and districts, as well as in vertical malls,鈥 she said.
Lee added that landlords of shopping centres had either lowered the base rent or adjusted its turnover level to help retailers, while they also launched promotions to improve overall traffic.
Responding to Leung鈥檚 rent reduction call, Annie Tse Yau On-yee, chairwoman of the Hong Kong Retail Management Association, said retailers faced an even more severe operating environment than during the Covid-19 pandemic.
She said she observed that retailers who had high hopes for a post-Covid revival in the retail market and were committed to a longer-term lease suffered due to higher rents.
She added that landlords were generally willing to discuss lease renewal, but the offers were far from sufficient.
鈥淭he market is very, very quiet. Landlords have to make sweeping rent cuts to stand a chance of making it through,鈥 Tse told a radio show.
Tse said it was necessary to make acceptable changes to existing leases to help retailers going through difficult times, as no one would benefit when some operators shut their doors to reduce losses.
Hong Kong retail sales contracted for 14 consecutive months to April, when they declined 2.3 per cent year on year to HK$28.87 billion (US$3.7 billion), also the lowest level since September of 2022.
To entice shoppers, the association mobilised more than 5,000 stores from over 180 brands to throw a shopping festival between July and August by offering discounts and perks worth HK$1.9 billion. The offerings were even 26.66 per cent higher than last year鈥檚 HK$1.5 billion.
Lawmaker Michael Tien Puk-sun, also owner of the G2000 fashion chain, told the Post that the most pressing challenge was the urgent need for retailers to continuously reinvent and innovate themselves.
鈥淗ong Kong is a free, capitalist market and the government should not intervene in it,鈥 he said. 鈥淚f it did, the price to pay would outweigh the gains.鈥
He added that one of the factors driving expensive rents was the high interest rates. He predicted that the city would have to bear higher rents for another year as a result of the currency鈥檚 peg to the US dollar.
鈥淭aipan Bread & Cakes recently closed its doors because it relied on its past success after it invented snowy mooncakes decades ago. But why are rivals like Bakehouse thriving? The real problem is that retailers, including myself, have to reinvent themselves.鈥
Additional reporting by Denise Tsang