Briefs: Hong Kong landlords brace for deeper cuts to retail rents

Hong Kong’s retail landlords are bracing themselves for a further squeeze on the lowest rents in more than a decade as tenants seek relief in the aftermath of the city’s worst Covid outbreak.

Some tenants have already started renegotiating leases by exercising bargaining power ahead of a proposed law that will allow a moratorium on payments. Government pressure and the need to keep retailers’ businesses afloat have also prompted property owners to offer discounts, analysts say.

Tenants “have these excuses to negotiate lower rents”, said Lieman Leung, a director at property agency Midland IC&I. Landlords have had to cut rents by about 30% in many cases, while some businesses most affected by the pandemic, such as luxury goods retailers, have been getting a 50% discount, he added.

Owners of malls and street shops are struggling to get rents back to pre-pandemic levels that made Hong Kong one of the world’s most expensive markets. That is hurting a key source of income for developers at a time when the residential and office sectors are also under pressure following the government’s strict response to the health crisis.

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Lawmakers are expected to pass a bill as soon as this month that will give tenants a three-month grace period on rental payments after Covid restrictions left stores shut or deserted and caused retail sales to plunge. Those that renew rents will not be subject to the relief, giving them leverage to ask landlords for discounts instead.

Shop rents in Hong Kong fell last quarter to the lowest since Cushman & Wakefield started recording the data in 2008. Causeway Bay led the declines in the most popular districts, with a 4.5% drop. The vacancy rate in key locations rose to 11% in March, the highest in a year, data from Midland IC&I show.

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The rental enforcement moratorium bill is aimed at preventing landlords from terminating leases or taking legal action against tenants in certain sectors for failing to pay rent on time. The relief would be valid for three months. Lawmakers are scheduled to debate the proposed law on April 27 and may approve it on the same day. — Bloomberg

Netflix subscriber woes hint at US consumer pushback on prices

When Americans are facing the fastest inflation in 40 years, something has got to give. And for 600,000 people in the US and Canada, that something was their subscription to Netflix.

Consumer spending is by far the biggest contributor to the US economy, and economists are keenly looking for any signs that higher prices are starting to chip away at demand. The latest quarterly results from Netflix, which counts TV shows like Love Is Blind and Bridgerton among its biggest hits, may provide some evidence that it’s already in motion.

“It’s a very early signal,” said Neil Saunders, managing director at GlobalData. “One of the things people will most certainly look to cut as inflation bites are those recurring payments month in and month out, and that obviously includes streaming.”

Earnings season is just getting underway, and there are other pockets of the economy where consumers are pushing back on higher prices. Retailers like Bed Bath & Beyond blamed slowing sales in part on inflation that is hurting consumer confidence, and grocery chain Albertsons is bracing for less spending by lower-income customers as food bills surge.

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For Netflix, there are a few other factors at play. Competition from other streaming services like Hulu and Disney+ is heating up, and as the world returns to normal, people are eager to get off the couch and start living again.

How that will play out in other corporate earnings remains to be seen. Economists have been expecting consumers to shift more of their spending dollars from goods, like home furnishings and cars, to services that include travel and dining out as Covid restrictions are lifted. But with inflation taking a bigger bite out of paychecks, there is less real discretionary income for purchases beyond the necessities.

“It’s clear that the cost of living crisis will be forcing many Americans to reconsider their spending decisions,” said Craig Erlam, senior market analyst at Oanda. “While there may still be some excess savings, it’s only natural that households are seeing costs rising and considering where they can cut back.”

So far, companies have had a fair bit of success passing along higher costs for materials and labour. Supply shortages combined with a snapback in demand have broadly pushed up prices across the economy, while trillions in government financial relief and low borrowing costs have played a role in keeping that demand elevated for longer

But companies also have to be cognisant of the impact of their price hikes on their sales. For retailers operating brick-and-mortar stores, it takes time to raise prices, and they have to be thoughtful about their strategy in doing so, said Kristen Gall, president of Rakuten Rewards, a shopping platform that offers consumers deals and rewards from retailers. That might not play out in the first quarter, but come later this year, consumers could especially feel the squeeze, she said.

“I think retailers still do have the power to raise prices and still be okay,” Gall said. “The question is, do any of them overshoot and raise prices by too much and it actually turns customers away from their brand.”

It is a difficult balance to strike. As seen with Netflix’s price increase of just a dollar or so, it doesn’t take much to tip someone over the edge. “It completely changes the landscape as soon as you start touching prices,” said Liza Amlani, principal and founder of the Retail Strategy Group. “People are not going to pay for something they don’t see the value in.” — Bloomberg

Xi urges greater global coordination to aid pandemic recovery

China’s President Xi Jinping urged greater coordination of global efforts to fight the pandemic, calling for a continued focus on people’s health despite growing debate over the costs of his Covid Zero policies.

China would continue its commitment to open up to the world, Xi told the opening ceremony of the Boao Forum for Asia via video link on April 21. Participants in the annual event held in China’s southernmost Hainan province included Israeli President Isaac Herzog, Philippine President Rodrigo Duterte, and International Monetary Fund managing director Kristalina Georgieva.

“We need to work together to defend people’s lives and health,” Xi said. “Safety and health are the prerequisite for human development and progress.”

China is seeking to support economic growth weighed down by lockdown measures to contain the country’s worst Covid-19 outbreaks since the early days of the pandemic. March data showed the biggest contraction in retail sales and a surge in unemployment to the highest since early 2020, even before more stringent virus-control measures were introduced in places like Shanghai in April.

“We have yet to walk away from the shadow of a once-in-a-century pandemic,” Xi said.

Economists at banks from UBS Group to Nomura Holdings have cut their full-year growth forecasts to well below the governments’ official 5.5% growth target. That adds social risks to the political pressures confronting Xi as he prepares for a twice-a-decade leadership reshuffle later this year expected to give him a precedent-breaking third term as Communist Party leader.

China has also faced criticism from the country’s largest markets, the US and EU, for refusing to condemn Russia’s invasion of Ukraine. Xi’s support for Russian President Vladimir Putin’s justification for attacking his neighbour has fuelled fears of foreign sanctions and an accelerated decoupling from the West.

In his speech, Xi took a few veiled swipes at the US, urging a rejection of what he called a “Cold War mentality” and “small circle” alliances. — Bloomberg