Monday, September 28, 2015

This should scare the shit out of you.

Look I have to get all the scary news out this week, because after that it's going to be nothing but the open road. I wouldn't want you think think I feel great about the world in general.

Since we don't really know what is going on in China, most of us look to their neighbors for clues. And it looks positively ghastly. I will give you a moment to center yourself. Ready?

"Cosmetics retailer Colourmix will move to Hong Kong’s Russell Street, once the world’s most expensive shopping strip, and pay about 40 percent less than the former tenant as China’s economic slowdown rattles the city." Source.

Apparently in the past two months the bottom has dropped out of the commercial retail market in Hong Kong. Rents are down between 40 to 50%. And no  one takes a haircut like that and not have it really hurt. They are in some serious deflationary pain for sure.


  1. Doesn't Hong Kong have ridiculous New York type rents. I know that its super crowded and lots and lots of skyscrapers. Can two nearly identical business models react in different way in a recessionary environment? Commercial rents get crushed as business suffers but residential rates remain stable because its about survival? Intuitively, it seems that both markets would trade similar. Maybe the bubble is really a commercial one instead? It would be interesting to compare both during our last panic. DF

  2. Yeah. It does. When I first started seeing the tweets about the rents on Russel Street in HK I said - is HK the next Greece? Obviously it's a far stretch because the work ethic is vastly different, but Greece also used to have a shopping district that was the most expensive in the world. From experience, it takes a bit of time to recover from a 40-50 drop in real estate prices. Some places never recover from that.

    I'm not sure of the answer for the disconnect between commercial and
    residential. During the last recession I didn't take the beginning as
    seriously as I should have. I was too busy thinking things were going to be like 2000. The Valley goes through a lot of recessions. Some more severe than others. So, I'm not sure which side the cracks showed first.

    I mean, it doesn't make sense that employers(commercial tenants)
    would suffer without the people they employ (residential) suffering.
    Although the fascinating thing to me is the residential housing shortage seems to be world wide. I'm always a little nervous to extrapolate the CA market with the market as a whole - but what is happening in CA seems to be happening everywhere in the developed world. Except maybe Canada.

    I think it's actually a little ironic that when I was down 40+%, the UK was one of the things that helped me hold on. During the war (1 or 2)they built massive amount of housing. Eventually that all got sucked up by population increases.