The government backed down and the former quarters have reopened as PMQ, a centre with more than 100 studio-cum-retail units which local designers can rent at subsidised rates.

Given that nearly HK$600 million of public funds has been spent on its renovation, PMQ is seen as a major test case on how Hong Kong conserves and revitalises historic buildings. It is also expected to play a vital role in government efforts to boost creative industries.

PMQ's mission statement says it wants to nurture the best design entrepreneurs in town, put them on the path to commercial success and become a popular destination for tourists and locals in its own right. These are lofty goals in a city that has spectacularly failed to cultivate more than a small handful of internationally-recognised home-grown brands.

"Times have changed. 'Made in Hong Kong' has a certain cachet now," says William To, creative and programme director at PMQ. "We think there is strong demand locally and among visitors for well-designed Hong Kong products."

To, who is also a senior consultant at the Hong Kong Design Centre (HKDC), is part of the management team at PMQ, which is headed by Victor Tsang Chiu-hok, previously principal of the Hong Kong Design Institute (HKDI).

The team was recruited by the Musketeers Education and Culture Charitable Foundation, founded by businessmen Stanley Chu Yu-lun, Lawrence Fung Siu-por and Leong Ka-chai, which won the government tender in 2010 to run PMQ .

The three men have donated HK$110 million towards the operation of PMQ and promised to plough back any profit into the venue. Board members include familiar faces from the design world such as advertising veteran Leonie Ki Man-fung, who was a key member of C.Y. Leung's campaign team in the last Chief Executive election, and Victor Lo Chung-wing, chairman of HKDC and battery-maker Gold Peak Industries. Aberdeen Street Social, a new restaurant opened by Lo's daughter-in-law Yenn Wong, will be among several businesses paying market rates on the ground and first floor to help subsidise the cheaper rent on higher floors.

A few weeks before the soft launch scheduled for May 9, the two seven-storey blocks that make up PMQ were still teeming with contractors. What used to be cramped, 400-square-foot apartments for officers and their families are being transformed into individualistic displays of fashion, jewellery, home accessories and more unusual products, such as non-toxic paint sold by 513 Paint Shop and lingerie by Ursula Wong, daughter of the late Cantopop lyricist James Wong Jim.

Rent will be on a sliding scale. Those with less experience can pay as little as HK$10,000 a month for a unit on the higher floors and most tenants pay around HK$15,000 - less than half the cost of a street level shop in the nearby SoHo area.

No wonder there is already a waiting list for when the leases are renewed in two years.

"Around 90 per cent of the shops have been leased and we want to leave some room for 'pop-up' stores," says Londie Yeung, leasing manager.

The application process is daunting. There are three rounds of interviews with members picked from a panel of 60 experts across different fields, including designers, academics, architects and marketing specialists. Tsang says applicants are mainly rated on creativity and viability of their business plans, with extra points for willingness to get involved with the PMQ community.

"We are looking for the best local brands that could do with a boost but are not complete start-ups. We are an 'accelerator', not an 'incubator'," he says. After two years, those who want to stay on must repeat the application process, although, ideally, tenants should be able to "graduate" and set up shop outside PMQ.

In the first year, 70 per cent of the 155 applications were allocated units. The ones who didn't make the cut can still open temporary "pop-up" stores on the site.

It may seem odd that a place intended to promote lesser-known talents should fence off the ground and first floors for swanky eateries and grandees such as Vivienne Tam and G.O.D.

Tsang insists that having known names on the premises is vital to the sustainability of the whole project, not just because of the higher rent that they pay, but also their crowd-pulling power.

PMQ has to be self-financing in the long run, he says. The donation from the Musketeers is a one-off and the government is not spending more than it has done on the renovation.

Those who are not fazed by the screening process also need to abide by rigid opening times. Shops are to be staffed daily from 11am to 8pm and designers must be stationed in the shops every day from 1pm to 8pm.

"We want to promote an atmosphere of open access, where visitors can participate in the creative process by interacting directly with the designers," Tsang says.

Many PMQ tenants say they have no intention of sitting in the shop every day and that it should be sufficient for assistants to be on hand to explain the products.

The landlord is more accommodating when it comes to the types of products sold.

There is a bit of mediocrity, at least from a layperson's point of view, and some shops stock products made by other, not necessarily local, designers. Yeung says tenants are allowed to promote creative designs by others to a limited extent.

Most shops are dedicated to just one brand, however. Pomch, set up by Polytechnic University classmates Jeffrey Leung and Felix Tai, is a collection of leather and PVC bags that they designed.

PMQ also welcomes expatriates without permanent residency as tenants, as long as the business is based here full time. Swiss-born Marielle Byworth first set up her jewellery brand Marijoli in Tokyo before moving to Hong Kong four years ago.

"It was InvestHK that encouraged me to apply to PMQ. I am so surprised to see how passionate people are here about helping entrepreneurs like me. In Tokyo, by comparison, it was a lot harder for me to get any kind of promotion," she says.

Contract manufacturers also use PMQ as a launch pad for their own brands. Husband-and-wife team Derek and Stefanie Chan have been making knitwear for Western brands for 20 years. They are now reviving robynestricot, a women's wear line designed by Stefanie. Like the owners of children's clothing brand Tong Chao in the same block, the couple hopes that this will be a different route to success in an increasingly difficult business hit by rising costs, labour shortages and volatile orders from the West.

"The rent here is probably a lot more expensive than old factory areas in Kowloon and the New Territories but we think the premium we pay for being in a central location will be worth it," Stefanie says.

But will people come? A manager of a major retail chain who worked up a good sweat walking up the hill to PMQ says there are major drawbacks such as a lack of parking and being too far from the escalator to pull in a lot of traffic on an ongoing basis.

Wu Lai-fan, owner of bespoke fashion business Fang Fong Projects in nearby Peel Street, says she considered PMQ but chose to stay where she is.

"I pay more than HK$50,000 a month here. But this has the advantage of being on the ground floor. The PMQ is not very accessible and I am not convinced there will be enough people visiting. The initial publicity will help but will management keep up the promotional campaign in the long run? I doubt it somehow," she says.

Wu concedes that it is one of few options open to young design entrepreneurs in Hong Kong.

"I tell young fashion designers to think twice before they set up on their own," she says. "Not only are they constantly battling rising rent, but 'fast fashion' and the craze for cheap, imported South Korean fashion has made it extremely difficult for local brands to survive."

It may be a tough road ahead but young designers like Leung are still basking in the glow of having their own shops.

"I am so pleased to be able to develop my own brand instead of just working for a big company where there is little room for creativity," he says. "And it sure makes a nice change from using the kitchen at home as our studio."