Year-end retail sales may fall by up to 8.1% as protests ravage Hong Kong

The sales decline may be even worse than the 2014 Occupy Movement.

Retail sales are likely to fall at a steeper decline than the 0.2% drop in 2014 as a wave of protests bring Hong Kong to a standstill, according to Moody's Investment Service.

In the report, Retail sales may fall somewhere between the 3.7 to 8.1% in 2015 and 2016, respectively, worse than the sales decline brought about by the 2014 Occupy Movement.

Also read: Hong Kong retail sales to dip 5% in 2019: PwC

The report comes after the Census and Statistics Department released retail sales figures showing a 6.7% YoY decrease in June, fuelled by the trade disputes and ongoing mass demonstrations.

With the protests expected to continue, the Hong Kong Retail Management Association projects a single- to double-digit percentage drop in sales for July and August versus the same period last year.

The decline will also constrain revenue growth for retail property operators in Hong Kong, the report said.

“The declining sales, which reflect economic uncertainty that stems from the US-China trade dispute and is now exacerbated by the protests, will constrain retail property operators' revenue growth because retail sales and operators' revenue are linked,” the Moody’s report noted.

“Some operators also receive turnover rent from certain retailers - a percentage of the retailers' sales. Declining retail sales mean less turnover rent for property operators and less negotiating power to raise rents for new and renewing retail tenants,” the report added.

Also read: Skyrocketing rents hit Hong Kong retailers hard

However, Moody’s noted that the effect of the declining sales on the credit quality of the retail property operators will be limited provided that the fall in sales do not persist for an extended period. Accordingly, property operators with tenants selling discretionary items are more exposed to weakness in consumer sentiment and tourist spending, as these operators typically also have high turnover rents.