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Agency firms cutting branches caused the sharp drop of shop rents
Damon Ho
6th January 2024
As the new year begins, the market’s sentimental is still inactive, the Hang Seng Index has been falling for four consecutive days since the first day trading, the property market transaction is still sluggish, and the agency industry has to carry out a large-scale branch reduction action in confront of such a persistent low transaction volumes in the market. This action helps to reduce operating costs and losses. Therefore, it maintains their survivabilityso that they could withstand the economic headwinds of the industry for the coming months ahead.
At the beginning of last year, one leading agency firm had a plan to reduce branches, but due  to the hope that the property market would rebound rapidly after the reopening of border with China, the arrangement for reducing branches was postponed. Until the fourth quarter of last year, the transaction volume of second-hand properties was still far less than average, and half of the branches in different districts had already suffered losses.
Before the branches were cut, the branch number of a leading property agencies owned more than 450 branches, and the branches in various districts had overlapped excessively, making a serious waste of resources. This worsened business caused the leading agencies firms to reimpose the cutting branches plan. Finally, a leading agency firm has closed one hundred branches, and there will be more one hundred branches to be cut before mid-year. The closed branches will reach two hundred, and the total branch number will be reduced by 40% to around 250.
It is estimated that the property market will only have a minor rebound after the Lunar New Year, and the transaction volume is expected to increase by ten to twenty percent, so even if the rebound occurs as expected, the property market will still not be able to provide the sufficient business turnover to the existing firms. That is why leading agency firms still need to cut branches until the mid-year.
The massive reduction of branches by agency firms will lead to a sharp increase in the vacancy rate of second-tier shop premises, and as a result, the rents of shops will decrease inevitably by more than 20%. Since the beginning of the new year, the landlords of these shops will taste the bitterness of the property market.
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