Flexible workspace operator to push on with regional expansion

JustCo, a leading Singapore-based flexible workspace operator, plans to continue expanding aggressively across Asia, says its founder and CEO Kong Wan Sing. The expansion plan between 2020 and 2021 should increase JustCo’s regional presence to eight markets across Asia-Pacific, namely its home market in Singapore as well as Australia, China, Indonesia, Japan, South Korea, Taiwan, and Thailand. Still, Kong Wan Sing believes that the current situation in Hong Kong has led to an increase in demand for flexible workspaces from large multinational corporations who see value in workplace flexibility, cost savings, and community engagement, which could also be an opportune time for JustCo to enter the market. (Source: SCMP, 6 December 2019)

Research View

Compared to gateway cities such as Singapore, Shanghai, and Tokyo which have 3-5% of Grade A office space occupied by flexible workspace, Hong Kong has a relatively low industry penetration rate – about 2-3%. Amid economic uncertainties in Hong Kong, companies should be looking for higher flexibility in space and lease terms, which flexible workspaces could offer. As Grade A office rents have been declining and should drop further in 2020, flexible workspace operators should find opportunities to enter the market with more options and lower costs in prime locations. Although landlords have turned more cautious, they should still consider flexible workspace operators, particularly those with a healthy and sustainable growth model beneficial to a building’s brand and occupancy.

Business receipts indices show weaknesses in the external trade, retail, and tourism sectors

The Census and Statistics Department released the 2019 Q3 Quarterly Business Receipts Indices for Service Industries on 9 December. Double-digit YOY decreases were recorded in business receipts of the accommodation services (-19.1%), retail (-17.5%), wholesale (-12.2%), and food services (-11.7%) industries. In contrast, the insurance industry recorded an increase of 6.8% in business receipts during the same period, followed by the banking (+5.5%) and courier (+5.0%) industries. (Source: Quarterly Business Receipts Indices for Service Industries, Census and Statistics Department, 9 December 2019)

Research View

It should not be surprising to see severe deterioration of the industrial, retail, and tourism sectors on the back of the US-China trade tensions as well as the ongoing local social unrest. As such, we continue to expect a subdued industrial and retail leasing market over the next few months. While we are seeing positive growth in business for the insurance and banking sectors, a dour outlook for Hong Kong’s economy should continue to weigh on the office leasing market, offsetting the benefits from increases in business receipts.

Pharmacy surrenders shop premises on Yee Wo Street

Causeway Bay, as one of the most affected areas by the continuing demonstrations, has recorded early surrender cases despite being a few weeks away from the traditional peak season for retail. A pharmacy will likely surrender its shop premises early in Hong Kong Mansion at the junction of Yee Wo Street and Great George Street, given the decline of Chinese visitors – a key customer for them. With a monthly rent of HKD500,000 (USD64,103), the lease should expire by the end of 2020. So far, there have been three early surrender cases recorded in Causeway Bay just in the last three months. (Source: HKEJ, 9 December 2019)

Research View

According to the Census and Statistics Department, retail sales of medicines and cosmetics have recorded a 33.5% YOY drop in October, while total retail sales were down by 24.3% YOY1. According to a survey conducted by the Hong Kong Retail Management Association from 29 October to 22 November2, 97% of the 176 respondents have recorded a loss since June 2019, while 49% of the surveyed chain stores plan to reduce number of locations by 10-20% if the market situation does not improve. With an uncertain outlook on the local demonstrations, businesses, especially those targeting Chinese customers such as pharmacies, are likely to remain stagnant. We expect the number of early surrender cases to rise, as the number of Chinese visitors is unlikely to increase in coming months.

1 Provisional statistics of retail sales for October 2019 [2 Dec 2019], Census and Statistics Department
2 The Hong Kong Retail Management Association & SCMP, 9 December 2019