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Shops market has been undergoing a spiral of non-cyclical decline
Damon Ho
23rd December 2023
Investors have always preferred to invest in shops, it is because of their high rental value and shop prices increase rapidly, that is why so many investors have focused on shop trading, but since the lockdown of the epidemic three years ago, the rental value and transaction price of shops have fallen down in a cascade, and there is no sign of rebound.
More than 20 years ago, the author had a lunch with a well-known shop investor, during the lunch, the author asked the investor why he only focused on investing in shops, the investor said that the merchants who rent shops are businessmen, they fully focused in their own business, so most of them would pay the shop rent on time, and it was not easy for them to give up their leased shops , so investing in shops, the rent rose steadily, and the appreciation was faster than the residential premises , so he mainly invested in shops. Until recent years, shops are opened in a brief period and are closed in a sudden, which is rather common, and the yield return on investment of shops has become extremely unstable.
About a year ago, the epidemic was under control, but China residents did not came to Hong Kong any more to buy luxury goods, so the rents and purchase prices of first-tier shops in the core busines s district fell sharply, and a recent investor sold a shop in core area, the transaction price was HK$ 97 million, but the valuation of this premises three years ago was 300 million, it was equivalent to a depreciation of 67% from the original value. Obviously, the price of first-tier shops is not as good as before.
One year ago, general shop investors' investment activities showed that they were not willing to invest in the core business district and they would rather invest in residential area's shop premises, the stable rental income was a great temptation for them. Until recent months, Hong Kong residents have been rushing to north adjacent Shenzhen for shopping and enjoying low cost of food & beverage service, coupled with the prevalence of online shopping, eventually the business turnovers of local residential area's shops were also being hit.
At present, although the unit price of small and medium-sized residential properties is still hovering at a low level, the average return rate has risen to 3% for six consecutive months, and some housing estates have risen to 3.3%, while the rents and transaction prices of shops have fallen together, and the vacancy rate has not decreased significantly. In fact, shops market has been undergoing a spiral of non-cyclical decline, and even if interest rates are reduced, it still be difficult to rebound from the current low position.
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