Pandemic Hits Poor the Hardest

There are more unemployed among the working poor than other Hongkongers

It is devastating how the coronavirus pandemic has severely impacted the worldwide economy, and Hong Kong is no exception.

Today there was a news report on the exhibitions industry, that 50 exhibitions and conferences were cancelled this year so far that would have drawn 54,000 exhibitors and 3.4 million visitors.

Last year some 1.69 million people came to Hong Kong for MICE events (meetings, incentives, conventions and exhibitions), which made up of 55 percent of the total business visitors according to the Hong Kong Tourism Board.

SoCO released its survey on low-income workers today

That has a knock-on effect on hotels, restaurants and shops in the city.

There are about 600 firms related to exhibitions in Hong Kong, all paying rent on warehouse space, and staff, and many sitting on lots of product that they need to sell, not to mention the hundreds of casual staff without work.

Others being hit very hard by the pandemic are the working poor. Their unemployment rate is eight times higher than the city's unemployment rate, and more than one-third do not get government subsidies because they find it too cumbersome to get through all the bureaucratic red tape.

The Society for Community Organization (SoCO) conducted a survey of more than 330 low-income residents and found 31.5 percent had lost their jobs between May and July, and 28 percent had not worked for an entire year.

Seventy-five percent of those surveyed had been unemployed for those three months, and 10 percent were behind on rent. 

Many found it too troublesome to apply for subsidies

Hong Kong's unemployment rate for the same period was 6.1 percent.

"The city's low-income residents are living in a disaster zone compared to other people," said SoCO community organizer Sze Lai-shan. "For those who have been unemployed for months, they are having to eat less or even take out loans.

"The government has been giving out subsidies, but the poorest among us are not getting a single cent."

Some of those interviewed complained they weren't able to reach officials from the social welfare department for help because many government staff are working from home during the pandemic.

Things are getting really desperate for these people who wonder how they are going to survive the next few days let alone the next month.

Has the government forgotten about them?

Or are they expected to follow Chief Secretary Matthew Cheung Kin-chung's advice to get a job washing dishes?

Retail Sector Continues to Sink

Shopping malls are practically empty, hitting the retail industry hard

Today Hong Kong reported just one new positive case of the coronavirus, and at the press conference this afternoon, reporters asked Dr Chuang Shuk-kwan, head of the communicable disease branch of the Centre for Health Protection if this signaled the start of the government possibly lifting the restrictions on gatherings and 50 percent capacity in restaurants and so on.

However Chuang again repeated her mantra that it was still too early to tell, that Hong Kong also had to consider the global situation, which she said was still not good, and also because the virus can be carried by asymptomatic people, it was best to still maintain social distancing, wear masks in public places and maintain good hygiene.

Dr Chuang says social distancing needs to continue

She is probably still waiting until at least over a week from now after the Easter holidays to see if there are any cases that are reported locally after many people gathered in beaches and hiking trails.

While the one new case is positive news for Hong Kong, there is a dire announcement from the retail sector, that some 10,400 workers will lose their jobs and 5,200 stores will close by the end of May, and probably even more will be shuttered later in the year.

The Hong Kong Retail Management Association released these statistics after surveying 152 firms that operate 3,345 stores and employ about 23 percent of the sector's workforce.

Association chairwoman Annie Tse Yau On-yee said 96 percent of the companies suffered losses during the pandemic, and the latest HK$137.5 billion government relief package would only delay the rise in the unemployment numbers.

Most people are staying at home to avoid possible infection

Companies could not benefit from the scheme of the government subsidizing employees' wages if shops were going to close.

She warned if the pandemic continued and there weren't enough relief measures, another 2 percent of employees, or 5,200 people in the companies it interviewed could expect to lose their jobs in May.

Also in the survey, more than half the respondents said rent cuts would be most helpful, though more than 84 percent said the reductions were not enough.

The survey revealed no landlords had heeded the association's call to charge rent based on business' turnover or offer rent relief for May and June.

Wonder if many of these landlords mentioned in this survey are the big tycoons who seem to think business is business and renters have an obligation to pay their monthly dues despite a global pandemic that is beyond anyone's control.

If the pandemic continues, more shops will close for good

Hong Kong has managed (so far) to flatten its curve significantly to single digits, but that's because a lot of people are not out shopping, nor do they have the appetite to do so with looming pay cuts or even job losses.

As a result that has impacted the retail industry profoundly, and if landlords want to continue having shop spaces occupied, then they have to step up and shoulder the burden too. They, particularly the tycoons, and large corporations, have the resources to ride out this unprecedented crisis.

How about giving back to the community to keep the economy going? Otherwise there is going to be a lot more empty shop spaces in Hong Kong than ever before.

Pleas for Rent Breaks Fall on Deaf Ears

One commuter suited up in hat, visor and mask on the MTR

In the last few days, it looks like there are more people are on the streets in Hong Kong, taking public transit, albeit with masks and the odd one wearing goggles and surgical gloves.

This evening I went to try a new restaurant in Sheung Wan and was shocked to see it completely packed with diners. It was as if the virus didn't even exist in this place.

Everyone wears masks while taking public transport

But for many other restaurants, they are hurting badly, thanks to eight months of anti-government protests and right after the coronavirus hit.

A restaurateur who owns a few places around town is looking glum. The other day we were in his newest restaurant that opened late last year and at lunchtime it's not packed, but it's a decent stream of business as well as takeout orders.

But it's not enough to cover the rent.

He says shopping mall landlords hardly budge at all when it comes to rent concessions. He heard some shop owners have banded together in the hopes that as a consortium they can have more leverage in dealing with the landlord, a massive conglomerate. Wonder how that is going.

Another entrepreneur with trending food brands in his portfolio, has decided not to renew leases with those shopping malls that have not offered any discounts on rent, and will boycott them. But will the landlord even care?

Many prefer to dine at home than eat out for dinner these days

One of the big landlords is Wharf Real Estate Investment Company (Wharf REIC), that owns Harbour City in Tsim Sha Tsui and Times Square in Causeway Bay, says the outlook for the city's economy was "pathetic" and "dire" in the near term.

"We feel Hong Kong is pathetic in the short term. It could take three months, six months or even nine months [for the COVID-19 outbreak to subside and the city's economy to bottom out], but we have no idea," Stephen Ng, the company's chairman and managing director said today during the annual results briefing.

"However in the long run, we believe Hong Kong is still a lovely place to do business. As long as we can walk through the current [crisis], it will be better."

Interesting he chose the word "lovely". I wouldn't describe Hong Kong as a "lovely place to do business", but Ng has said so.

Times Square shopping mall in Causeway Bay is empty

Maybe it's because he feels his company has the upper hand when dealing with their thousands of tenants who are all begging for some kind of rent concession?

But these tenants are literally going to go out of business or cut their losses short and close in the next few months if the coronavirus does not let up soon. Case in point: today I saw on Twitter that the University of Hong Kong will continue classes online until May 16! It is possible schools could be closed till May as well.

So... for the sake of keeping the Hong Kong economy somewhat alive, the city's big shot landlords should stop obsessing about their company's stock performance and consider giving their tenants a break in the rent. Isn't it better to have shop spaces occupied than vacant? An empty shopping mall is hardly appealing to customers...

Tone Deaf Landlord

Louis Vuitton behind this protest sign will be closing its shop in Times Square

Of all the luxury brands, looks like Louis Vuitton is cutting its losses first.

After seven months of protests in Hong Kong, the French name brand is closing one of its eight stores in the city.

Times Square's owner Wharf Reic refuses to lower rents

The world's top luxury name is pulling out of Times Square in Causeway Bay, after landlord Wharf Reic refused to lower the rent on its second-floor space. Louis Vuitton currently pays around HK$5 million (US$642,000) a month in rent.

According to the Hong Kong Tourism Board's latest figures, only 2.65 million people visited in November 2019, a decline of 56 percent from the same period last year.

Other brands like Moncler, Gucci and Salvatore Ferragamo have seen sales plunge as much as 45 percent in Hong Kong during the third quarter. LVMH reported a 25 percent decline for its Hong Kong sales in the same period.

The mainland customers who use to deluge luxury stores in Hong Kong daily are now staying at home to shop, with prices becoming more competitive in China. Previously luxury sales in Hong Kong were driven mainly by international travelers, with visitors from the mainland accounting up to 70 percent of luxury goods sales.

Hong Kong Land has offered concessions to tenants

While it's understandable Louis Vuitton wants to minimize its losses, landlord Wharf Reic is hardly being sympathetic to the situation. Meanwhile Swire Properties that owns Pacific Place in Admiralty, and Hong Kong Land, with The Landmark in Central have offered a series of measures to tenants, including rent concessions.

Is this wishful thinking on Wharf Reic's part in expecting the protests to end soon? Or is the developer completely tone deaf to what has been happening for the past seven months?

Everyone has been financially affected by the protests in the city, one way or another. Job in the hospitality industry are being cut, shops closing down as well as restaurants. Perhaps telecom and internet companies are benefiting from all the communications and online use, but most of us and the city as a whole have been affected for over half a year.

Swire Properties has also helped ease rent pressure for tenants

And the unrest is expected to continue in 2020, with Chief Executive Carrie Lam yet to find out way out of this political crisis. The economy is not expected to return to pre-protest levels within this year, maybe 2021 if some kind of political resolution is found soon.

So for Wharf Reic to refuse to lower rents is hardly helpful in keeping Hong Kong's economy going, and in the developer's best interests, wouldn't it be better to have a giant prime retail space occupied than left empty? Hard to understand Wharf Reic's strategy when everyone is else is working together to find a way to stay afloat...

Do We Need More Bubble Tea?

Customers wait over an hour for bubble tea at Tiger Sugar in Causeway Bay

 Would you wait over an hour for bubble tea?

It's all the craze in Hong Kong which I find bizarre as bubble tea was the drink of the 80s and now it's back again?

This bubble tea shop is social media savvy

Over a month ago a colleague told me about a shop called Tiger Sugar that opened in Causeway Bay and people were willing to wait over an hour for the drink -- even though they were wilting in the heat.

And landlords are greedily rubbing their hands together at the thought of more bubble tea brands coming to the city looking for spaces to rent.

Since July there were 62 different brands of bubble tea in Hong Kong with 282 shops.

Do we really need more?

Apparently the demand is there. These shops just need 250 sq ft to 300 sq ft preferably near schools, offices, where young people hang out like Mongkok, Jordan, Causeway Bay, Central.

And the shops are financially able to afford rents now that they have dropped about 20 percent since the peak in 2014. With rents at around HK$300 to HK$400 per sq ft, that means the total rent could be HK$90,000 to HK$120,000. That's a lot of cups of bubble tea to sell.

People take pictures to show others what they're drinking

What is driving the demand is social media -- people posting pictures of the drinks they have bought, raving about how long they waited and yet the bubble tea was so good. Those looking at the pictures feel like they're missing out.

Not me!

Bubble tea drinks are hardly healthy, as it's the giant tapioca balls are made of starch, which means lots of sugar. No one really finishes all those tapioca balls and even worse the drinks are served in plastic cups with plastic straws. Hardly environmentally friendly.

And we're going to have more bubble tea shops?

This craze is temporary and then many of these shops are going to close down. Then again I might be wrong, but it's definitely breeding a lot of potential diabetics in the future...

Fintech Company Pays Through the Roof for Rent

Cheung Kong Center has office space if you're willing to pay through the roof

 Housing prices aren't the only real estate prices going up -- office space is too.

Today it was reported a cryptocurrency trading company has signed a lease to take over the 45th floor of Cheung Kong Center -- the headquarters of tycoon Li Ka-shing -- for a whopping HK$225 per square foot. For almost 20,000 square feet, that's almost US$600,000 a month.

The going rate in the building is HK$200 to HK$210, but BitMEX must have been keen to secure the entire floor which is why they were willing to shell out even more.

Cryptocurrency trader BitMEX is renting at Cheung Kong

This will have a knock-on effect on other companies renting in Central -- meaning they will have to pay more too.

Looks like cryptocurrency traders are the ones who can afford the outrageous rents in Central because everyone else is moving to places like Wong Chuk Hang and further east like Quarry Bay.

Managing director of Cushman and Wakefield John Siu made an intriguing comment on the news of BitMEX renting at Cheung Kong Center. "In the past half year, we've seen more digital currency or blockchain companies coming to look for spaces in Central. [Central] can polish the image of a company."

Does BitMEX, which was founded in 2014 need some embellishment? In an interview in July with one of the founders, the company is worth US$3.6 billion and its trading volume is US$3.3 billion in 24 hours, making it one of the largest trading platforms of bitcoin in the world.

Fintech companies like the prestigious Central address

Denis Ma of JLL or Jones Lang Lasalle believes fintech companies are going to be the ones looking for space in Central, as traditional financial institutions have slowed their expansion in Hong Kong.

Can you imagine paying US$600,000 a month in rent? In the United States, one can get a house for that -- every month. Li Ka-shing must be laughing in his retirement. While cryptocurrencies might be virtual, you still need an office to trade them...

The A&F Party is Over

The A&F boys whipped up a lot of attention in the city in 2011

We're actually surprised Abercrombie & Fitch lasted this long in Hong Kong.

After a splashy opening that included topless men in red shorts riding in an open-deck bus and greeting customers at the Pedder Street store in 2011, the casual American wear brand will close its doors early next year.

The male models drew lots of customers into the store

It is breaking its lease that was supposed to expire in 2019, probably to the relief of the company's headquarters, which was paying HK$7 million a month for the 25,600 square foot store, double that of the previous tenant, Shanghai Tang.

"The company exercised a lease kick-out option for its A&F flagship store in Hong Kong," the retailer said on Friday. It claimed the move was "part of the company's ongoing strategic review" and "was expected to drive economic benefit over time".

Which probably means we had to cut our losses and review our strategy.

After the store vacates the Pedder Street location, Abercrombie & Fitch will not have a presence in Hong Kong anymore, though it plans to add five more stores to the mainland by the end of January.

How much merchandise do you have to sell to make rent?

Anyone could have told the company paying HK$7 million a month was too much, and how many jeans and T-shirts would it have to sell to make rent? Someone wasn't doing the calculations.

And besides there are fewer mainlanders shopping in Hong Kong, and the days of someone buying 10 Gucci bags at once are long gone.

They are lucky to get 10 customers buying one bag each these days.

So who is going to take over this prime shopping space? And will the rent be lowered too?

We're all eager to find out.

Flexible Employees, Flexible Space

The bank has dome some creative cost-cutting by moving staff to hot-desks

It's quite shocking to hear financial giant HSBC has decided to cut costs further by moving 300 of its staff into a hot-desk office in Causeway Bay.

These temporary office spaces are typically used by freelancers who want to do some work or having meeting space, or start-ups who aren't ready to commit to a lease yet and may be expanding too quickly to estimate how much space they need.

But HSBC is going a step further by moving its digital and transformation teams to WeWork, an American-based co-working office provider with an office in Causeway Bay.

The bank has rented more than 300 desks at WeWork, which is the largest corporate membership subscription in the Hong Kong market so far, according to Cynthia Chan, manager of office specialist Asia Pacific research at CBRE.

An idea of what WeWork looks like in Causeway Bay

"Co-working offices can provide a flexible alternative for banks looking to reduce their footprint or for short-term project space," she says.

Chan adds tenants in co-working spaces are not required to pay deposits, take out long leases, or make large capital out-lays on fit outs.

According to the WeWork membership plan, the starting price for a hot desk is HK$6,200 per month, and that includes the use of the venue for seminars, workshops or events. Children are even welcome to come in.

This compares to HK$8,170 per month per person for a traditional office space, based on a company with 300 staff in Causeway Bay and would need at least 27,000 square feet. The monthly total bill would be HK$2.45 million for a three year lease.

But with a rented co-working space, the savings work out to HK$23,640 per person annually.

That's serious penny-pinching.

HSBC isn't the only bank looking at co-working spaces, as Chan says these kinds of offices can help manage fluctuating staff numbers due to uncertainty in the economic markets.

While the bottom line probably makes the bank look good to shareholders, HSBC insists the move is not a cost-saving measure.

"As HSBC accelerates the build-up of our digital capabilities, our space in WeWork will allow our employees to collaborate in an open plan and agile working environment," says Andrew Connell, HSBC's regional head of digital, retail banking and wealth management, Asia-Pacific.

We can't help but wonder if other traditional businesses will be looking to co-working spaces as the most cost-effective way forward. But how would employees feel about working in a space that they are constantly sharing with others? Where do they keep all their stuff? In a locker? Or take everything with them all the time?

Co-working spaces takes working in a cube farm to another level.