An empirical study of the locale-varying impact of the pandemic on retail property market rental performance

Abstract

Since the outbreak of the pandemic in January 2020, Hong Kong has experienced several waves of local outbreaks, and various anti-pandemic policies have been implemented to contain the spread of the virus. Various market reports and literature suggest that global shocks and disasters, such as the pandemic, have varying impacts on retail performance in locales with varying spatial attributes. This dissertation is among the first to study how the retail rental market in different districts, characterized by varying attributes, reacted to the pandemic shock and the relevant public health policies. A combination of the Difference-In-Difference Model and Ordinary Least Square Regression analysis will be employed to test the proposed model and explain the hypothesis. After comparing the rental performance of retail flats in Popular Shopping Destinations (PSD) such as Mong Kok (MK) to that of Unpopular Shopping Destinations (USD) such as Yuen Long (YL) over the past ten years, it was revealed that the rental premium in MK retail flats was significantly and adversely affected by the pandemic shock at a time lag of a 2-month delay. Specifically, the rise in infection numbers and the implementation of several containment measures, such as the cancellation of public events, face coverings, and restrictions on gatherings, all had a negative impact on retail performance. In contrast, the vaccination numbers and the implementation of testing policies such as PCR or Polymerase Chain Reaction testing assisted in the recovery of both districts. A similar microscopic model is proposed by further dividing and classifying each district into neighborhood-level PSD and USD for an in-depth analysis of the externality impact. While it was revealed that the retail property market performance was relatively weak in neighborhood-level PSD during the crisis, the infection numbers, vaccination rates, and government policies had similar impacts on both destinations. In short, the proposed hypothesis was supported by the empirical results. The finding of the rental premium in MK and neighborhood-level PSD in both districts confirmed the proposed market hierarchy in terms of the bid-rent theory along the high-order market center such as MK to the lower-order suburban area. Besides, the market center was revealed to be more sensitive and vulnerable to exogenous shocks due to the reduced local customer spending, loss of tourists, shifted customer behavior, and fear of infection, which have deprived its advantage of high accessibility. Landlords, retailer tenants, and policymakers should develop more adaptable and flexible strategies to prepare for other potential threats in the future.