Tiny match-box shops pack a world-class rental punch

PUBLISHED : Wednesday, 16 September, 2009, 12:00am
UPDATED : Wednesday, 16 September, 2009, 12:00am

Dynamite, it is said, comes in small packages. And Hong Kong's tiny 'match-box' shops pack a rental punch that puts them among the most explosively expensive retail outlets in the world.

'They're just like tiny match boxes but they command unbelievably high rentals on a per square foot basis,' said Tony Lo Chin-ho, a director of the retail department at Midland Realty.

'They can afford to pay such high rents because their location allows them to generate huge sales volumes.' Lo was referring to the maze of tiny shopfronts in Causeway Bay, some of which provide tenants with less than 100 square foot of space from which to conduct their business but which may command rentals of up to HK$170,000 a month.

Money changing is clearly one type of business that can flourish in a tiny but well-located and expensive space. For example, an operator of a money-changing business from a 95 square foot store in Cannon Street paid a Hong Kong record rent of HK$1,789 per square foot per month.

That translates into a monthly rental of HK$169,955 and is some 50 per cent higher on a pro-rata basis than the HK$864 per square foot per month paid by skin-care chain, Body Shop, for its nearby 880 sq ft store on Russell Street in Causeway Bay.

Other 'match box' outlets paying high rents in Causeway Bay include ice-cream sellers, jewellers, and news kiosk operators that sell magazines, pens, and lighters. Their ability to pay rentals of as much as HK$1,800 per square foot - a rate that works out even higher than rentals paid by shop owners on New York's fabled 5th Avenue at HK$1,000 per square foot - has raised not a few eyebrows, especially because of Hong Kong's reputation as one of the world's most expensive cities to operate a business.

In a survey released in June, property consultancy CB Richard Ellis said that Hong Kong ranked as the world's second most expensive retail location after New York. Average rents in New York worked out at the equivalent of HK$1,170 per square foot per month.

By comparison, retail rents charged in Hong Kong was HK$634 per square foot a month, and the top rent was HK$1,800 per square foot per month.

Helen Mak Hoi-lun, the senior manager of retail services group at Colliers, said rental charge was based on the traffic count and smaller shops that relied heavily on low-margin volume sales would go for locations which offered high pedestrian flow. 'This rule applies worldwide. Fast-food chain McDonald's low margin business may need to sell hundreds of meals a day and must open stores in the busiest streets,' she said.

'But luxury brands like Louis Vuitton charge high prices and for them two handbags sold a day is fine.'

Mak said the retail investment market had turned active again recently because economic recovery was in sight and consumers were showing signs of regaining their spending confidence.

'Normally, the investment market recovers about nine months ahead of the leasing sector. So retail rents will likely pick up in the second quarter of next year,' she said.

Measured across the entire market, retail rents had declined by about 20 per cent following the collapse of US investment bank Lehman Brothers and the onset of the global financial crisis a year ago, said Mak.

According to data provided by Colliers, the value of deals done by investors buying shops worth HK$30 million or above in the third quarter to date stands at HK$7.26 billion, up 77 per cent on the full third quarter last year. The number of deals so far in the quarter was 62 versus just 22 transactions for the full period last year.

Selling point

A money-changer in a 95 square foot store in Causeway Bay pays a monthly rental per square foot of, in HK$: $1,789