The slow death of small businesses in Hong Kong

Soaring rents are forcing many of the city's small firms to move or close, especially in high-end shopping districts such as Causeway Bay

PUBLISHED : Wednesday, 03 April, 2013, 12:00am
UPDATED : Wednesday, 03 April, 2013, 5:07am

Over the past decade, car-repair shop owner Benny Chan has seen more than 70 per cent of his small-business peers disappear as his neighbourhood fills up with high-end Western bars and Japanese restaurants.

"Rents here are going up multiple times," said Chan, who has been in business since 1985 in Tai Hang, just east of the Causeway Bay shopping district. "We'll all be out of here in the next four to five years."

Rents are climbing in areas near Causeway Bay and Hong Kong's other prime shopping districts, where luxury stores attract free-spending tourists from the mainland. That is squeezing out family-owned shops, congee and noodle vendors and other small businesses like Chan's as developers and landlords seek to profit from the trend.

"There's only a limited supply of good spots and the rents are super high" in major shopping districts, said Joe Lin, senior director for retail services at CBRE Group. "It's natural that restaurants and some retailers would find these fringe areas with an equally hip, high-spending crowd more attractive."

Shops in Causeway Bay fetch an average of US$2,630 per square foot a year, the highest in the world, according to a November report by broker Cushman & Wakefield. For a 500 square foot shop, that is an annual rent of US$1.32 million. Across the harbour in Tsim Sha Tsui, retailers including Dolce & Gabbana and Chanel pay US$1,547 per square foot annually. Retail rents in the Central business district, where banks including Goldman Sachs and UBS have offices, are US$1,856 a year.

Developers are taking advantage of the opportunity. Soundwill Holdings, a mid-sized local builder, last year completed a 163-unit residential building in Tai Hang and has begun work on another. A block away, the company has plans for a 65,000 sq ft project with Henderson Land Development.

"It's only a 15-minute walk from the world's most expensive shopping location," Soundwill executive director Dickson Lau, referring to Tai Hang's proximity to Causeway Bay, said in the clubhouse of the 37-storey tower. "With all the new restaurants and apartments, there'll be a huge upgrade in the standard of living in this area."

Shares of Soundwill, which owns 20,000 sq ft of retail space on Causeway Bay's Russell Street, have risen almost 11-fold since early 2009, after profit tripled over the period. Lau said the group expects rental income to double this year from 2012. To the west of the Central business district, in Sheung Wan, Sai Ying Pun and Kennedy Town, small shops also are being pushed.

"To open here is risky, but so far we're doing good," said Jerome Spitzer, whose Metropolitan restaurant in Sai Ying Pun replaced a grocery in March, adding to his three French restaurants in Central. Serving Nicoise salads and tarte tatin, the restaurant has a facade designed to resemble the Art Nouveau metro station entrances of Paris.

"Business is good if you're already an existing operator in Central," said Spitzer, whose French Creations group also runs a fifth restaurant in Happy Valley. "But to open another new one there - the rent is just crazy."

Monthly rents for ground-level shops in the up-and-coming fringe areas have risen "multiple times" in the past five years to about HK$40 to HK$60 per square foot, according to Helen Mak, head of retail-services at the Hong Kong offices of broker Colliers International. Still, at upwards of HK$720 a year per square foot, they remain well below those in top shopping districts such as Causeway Bay, she said.

Tina Sin, a flower seller in her 60s who operated a shop in Tai Hang for almost 30 years, was evicted three months ago after both adjacent stores gave way to a sushi restaurant and a bar. She found another spot in the area - a 50 sq ft stand with no cover that's about half the size of her original business - at the same rent.

"The new landlord is an old neighbour who's trying to look out for the community," said Sin. "But he also told us that when someone comes in with a good offer for the building, he'll sell it, and that'll be the end for us."

Others were not as lucky. Chung Wing-ho, who ran a car-repair shop on the same street as Sin's old florist spot, moved his business to Sai Wan Ho when his landlord doubled the rent to HK$30,000 a month in 2011.

"There wasn't even room for negotiation," said Chung. "To double the rent basically means asking us to leave. The margin for our business isn't very high to begin with."

In Sai Ying Pun, New World Development will this year begin selling a residential project with about 100 units. The company said last year it expects to market the project at about HK$14,000 per square foot.