Pan Zhiming: In the second half of the year, the overall buying and selling prices and rents of commercial properties in Hong Kong will maintain narrow fluctuations, with an overall downward adjustment of no more than 5%.

Recently, Pan Zhiming, the Managing Director of Central (Commercial Shop), pointed out in an interview that due to the overall economic environment, business environment, tourism recovery falling short of expectations, and lack of consumer confidence, along with the continuous escalation of the recent trend of consumers going north and store closures, the Hong Kong street shop market has entered a "low point" phase. He predicts that in the second half of this year, the overall buying and rental prices of commercial shops in Hong Kong will remain stable, with an overall decrease of less than 5%, and rental prices of industrial buildings and street shops in core business districts may drop by up to 10%. Pan Zhiming analyzed that Hong Kong residents, especially family groups, generally choose to shop in the north during holidays because prices are lower, there are more choices, and the service experience is better in mainland China. He said, "You could easily spend a thousand dollars in Hong Kong, while in mainland China, you can have several good trips with that money." He stated that in the past, the retail industry often complained that the trend of Hong Kong residents shopping in the north weakened local consumption, but this has become an irreversible trend, and the industry can now only "accept reality". Furthermore, in the past, tourists coming to Hong Kong to shop drove rental prices up in prime street locations with luxury goods, jewelry, watches and other high-end products. Now, tourists prefer more of a "checklist-style" deep travel experience, which has limited actual impact on retail and hotel industries. This structural shift makes it difficult for street shops to sustain their profit model relying on high-spending tourists, and property owners must find new "traffic passwords" to break through. The visible changes in the market are evident. Pan Zhiming pointed out that street shop rents have fallen by 50%-80% from their peak, and the tenant structure has also seen a significant adjustment. Previously, core commercial district street shops were occupied by luxury brands, jewelry, and big names, but now "as long as you can afford the rent, owners are willing to negotiate". He joked, "At least now there are more people on the streets, it's not so deserted". Data shows that street vacancy rates in various districts range between 5%-10%, with overall recovery progressing slowly. Recently, many well-known brands have closed stores, making potential entrepreneurs hesitant to open new stores. Faced with the continuous weakness in consumer spending, Pan Zhiming believes that the market will go through a round of "reshuffling", and the street leasing market has shifted from "owners call the shots" to "tenants choosing owners". He emphasized that street businesses are very realistic, "If you have customers, then keep the store open. If not, it's better to close the store early". The first to recognize reality is the owner. "It's not about how much rent you want now, it's about how much rent the tenant can afford," Pan Zhiming said, noting that the only way out for owners is to actively reduce rent or provide rental incentives to attract tenants. In the current market environment, "out of 100 owners, 99 are willing to lower the rent", as not lowering the rent would result in vacancies. He admitted that many units remain vacant for half a year, and ultimately owners have to face reality and reduce the rent to a level that tenants can accept. Given the significant decline in rents, it is expected that rent reductions for some units in the future will be between 10%-20%. The second to recognize reality is the tenant. Pan Zhiming pointed out that rent is only a part of the cost of running a store, with other expenses like labor, merchandise, and renovations being equally burdensome. If revenue falls short of expectations, balancing income and expenses becomes difficult, and many tenants prefer to terminate the lease or close the store. Some tenants try to transform to survive, but he questioned, "Why is it that some bakeries have long queues every day while traditional pie shops are empty? Everyone needs to think about why there is such a big difference under the same sky." He believes that owners lowering rent and tenants transforming are just temporary solutions. For the street shop market to flourish again, it depends fundamentally on overall economic recoverybefore the pandemic, strong consumer spending, many tourists, and high tourist spending were pivotal for businesses to thrive. Although the government has introduced several stimulus policies, changes in tourist spending habits take time and may not show immediate results. For experienced shop investors, Pan Zhiming pointed out that this group of investors is currently focused on selling off property, as banks require them to reduce the mortgage ratio for commercial properties, with a greater desire to sell off than to buy in. The pace of selling off properties has slowed down recently mainly because "the easy-to-sell ones have already sold out, and what's left are hard to sell". Investors who quickly sold off their assets in the earlier stages usually had assets in good locations with high liquidity; now, the remaining properties are generally in average locations, with few potential buyers. However, as long as investors actively communicate with banks, gradually sell off properties to reduce leverage, banks will provide them with a period of leniency to avoid forced liquidation.