Shop prices just keep on soaring

PUBLISHED : Saturday, 26 May, 2012, 12:00am
UPDATED : Saturday, 26 May, 2012, 12:00am


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Rents and prices for ground-level shops in Causeway Bay are soaring as global brands scramble to open stores in the second most expensive retail precinct in the world - raising doubts about how sustainable the trend is given the gloomy economic outlook.

Early this month a mainland-backed company paid HK$1.15 billion for a 23,000 sq ft shop at 108-120 Percival Street, close to Times Square - just a day after it went on the market. The previous owner had paid HK$330 million for the three-storey shop in 2005.

Two international brands, including Spanish fashion label Zara, are in talks to lease the shop at an estimated monthly rent of HK$5 million - far more than the previous HK$880,000 a month, according to people familiar with the negotiations.

'This huge increase in rent reflects its massive sale price,' said a property agent who did not wish to be named.

A Zara spokeswoman declined to comment. 'An announcement will be made once we open a new store,' she said.

It is understood the fashion chain will also pay HK$10 million a month for 47,000 sq ft of ground-floor space at Lane Crawford House in Central, after rival H&M's lease expires later this year.

But in Causeway Bay, even the tiniest of premises are getting big offers. A 200 sq ft ground-floor shop at 77-83 Percival Street received an offer of HK$200 million, or HK$1 million per square foot. Milan Station, which sells second-hand designer handbags, currently leases the shop for HK$160,000 a month.

The deal would break the existing record of HK$633,333 paid per square foot for a neighbouring shop at 76 Percival Street. 'It's outrageous. But small shops always generate these unbelievably high prices because it's a smaller investment,' said Joe Lin, senior director of retail services at CB Richard Ellis. Lin said the new owner could try to justify the expense by bumping up the monthly rent to at least HK$300,000, or HK$1,500 per square foot.

He said capital had been flooding into the retail property market, as the sector is exempt from the special stamp duty imposed on quick resales of residential property - a move that has taken transactions and prices in the retail sector to an all-time high.

Rents of US$1,943 per square foot in Causeway Bay made it the second-most expensive shopping street in the world last year, behind Fifth Avenue's US$2,250 and topping Ginza in Tokyo, London's Bond Street and the Champs Elysees in Paris, according to Cushman & Wakefield, a New York-based real estate services firm.

Lin doubts whether the trend is sustainable, noting that some big retailers had become wary because of spending by visiting mainlanders starting to slow since the Lunar New Year in January.

Hong Kong retail rents increased 32 per cent in prime locations last year, according to Savills, even as global economies and property markets slowed. Jeannette Chan, a regional director of the retail department at property agent Jones Lang LaSalle, said prices for ground-level shops in Causeway Bay had jumped 10 per cent since January.

'There is lots of talk that mainland shoppers spending less this year will put pressure on rents. But in reality, I did not see retail rents showing signs of declining,' she said.

With a limited supply of prime street-level shops, Chan said tenants - and newcomers - were starting to negotiate with landlords up to two years ahead of leases expiring.


Retail rents in certain prime locations increased by this much last year, according to Savills