Wealthy shoppers are driving a shift in Hong Kong's retail mix away from the mid-priced merchandise that once attracted local and foreign shoppers to the city, to the high-priced luxury international brands favoured by mainland visitors.
The trend could see an exodus of mid-range retailers to other Asian cities, because they are finding it increasingly difficult to meet the soaring rents in Hong Kong, said local property agents.
'The city will become like Beverly Hills, London's West End, or Hawaii, offering only the highest-quality products for the most affluent people, and unable to house small shops,' said Helen Mak Hoi-lun, director of retail services for property consultancy Colliers International.
The influx of wealthy mainland tourists had already boosted the presence of luxury brands and jewellery shops in Hong Kong, Mak said. These traders were willing to pay high rents because their businesses were lucrative due to the visitors' strong purchasing power.
Hong Kong buyers in search of ordinary items might find shopping in the city centre a challenge in future, said Mak. 'There will be Chanel and Gucci stores everywhere, and more jewellery shops than 7-Elevens.'
Joe Lin Chi-ho, senior director of retail services at CB Richard Ellis, said landlords in Hong Kong were increasingly focused on the spending patterns of mainland visitors and thus offered more luxury goods in their malls. This had distorted the market, he said.
'Of course mainland shoppers enjoy visiting the malls offering such a mix. But the locals think there are limited choices,' Lin said. 'Our malls offer a smaller variety of shops than malls elsewhere.'
Lin said shops selling mid-range brands found it more difficult to meet rising rents than those selling luxury brands. A few mid-range fashion brands from Europe and the United States had consulted CBRE with a view to coming to Hong Kong in the past three years, but had abandoned these plans in favour of opening in other cities such as Singapore, Kuala Lumpur and Bangkok.
'Many retailers are worried that rents will get more and more expensive,' he said. 'But some will still come due to strong sales.'
According to CBRE's latest report, the average monthly rent for ground floor shops of around 1,000 square feet in Central was US$70.80 per square foot (HK$550) in the final quarter of last year, and US$66.10 in Causeway Bay.
This was higher than in Ginza, Tokyo's famed shopping area, were rents ranged between US$41.60 and US$58.90 per square foot. Singapore's prime shopping street, Orchard Road, was priced US$23.60 per sq ft on average - nearly 40 per cent lower than the US$38.80 per sq ft in Mongkok.
In Bangkok, rents were between US$5.60 and US$9.90 per square foot.
There has been rapid development of retail properties in Asian cities. Singapore's DBS Vickers Securities said the country's net annual completion of retail space reached 1.3 million square feet per annum in the past two years, much higher than the average of 160,000 square foot per year between 2000 and 2008.
About 56 per cent of new completions in the past two years were in the central area, including upscale malls ION Orchard and Marina Bay Sands.
In Bangkok, CBRE said the total retail supply grew to 5.46 million square metres at the end of last year, up 1.5 per cent year on year. The figure would rise further to 6.15 million square metres in the next few years.
One retailer seeking to expand its footprint in Thailand is Central Retail Corporation. As the largest retailer and department store operator in the nation, with sales worth 97.7 billion Thai baht (HK$25.1 billion) last year, it is investing 10 billion baht to build a 37-storey luxury retail and hotel complex in the prime commercial area in the capital.
'It will be a luxury shopping mall positioned like Pacific Place or the International Finance Centre in Hong Kong,' said Chart Chirathivat, managing director of the project.
Situated on a site on Ploenchit Road which once housed the British embassy, the CRC development will have a total area of 144,000 square metres - including 70,000 square metres, or eight storeys, of retail space, and a 222-room Park Hyatt hotel.
Chirathivat said the upscale retail mall would have a mix of international luxury fashion brands, local and high-street labels, as well as new-to-market retailers. Targeting young and wealthy locals as well as tourists, it will also house a spa, bookstore, cinema and fine restaurants. It is scheduled to open in 2013 and Chirathivat expects monthly rents to range between 185.80 baht (HK$47.80) and 557.40 baht per square foot at current market prices.
Asked if Bangkok would woo more overseas retailers than Hong Kong because of lower rents, the corporation's chief executive, Tos Chirathivat, said Bangkok was one of the cities with the highest potential to become a shopping destination. 'It's not just rents, but also personnel and utility costs,' he said. 'Those three outlays are the biggest costs for retail operations and I think we are the most competitive in that area. There is no reason at all for us not to be a top destination for tourists in shopping.'
He said Hong Kong's proximity to the mainland would ensure the ongoing success of the city's retail industry. CRC opened its first department store on the mainland last year, and planned to open two to four new stores there every year.
But Jeannette Chan Wing-wai, Jones Lang LaSalle's head of retail for Hong Kong and southern China, said Hong Kong was unlikely to be challenged as a shopping destination.
'Hong Kong is the city with the most developed retail market offering the widest variety of luxury brands. [It] is a tax-free city whilst Singapore and Thailand have sales tax,' Chan said. Many overseas companies such as Apple and MCM were competing for prime retail locations here.
'Rising rents are not really creating a huge burden for retailers in Hong Kong, as they will be able to afford high rents if their sales turnover increases at the same time,' she said. 'This is the case in Hong Kong as a result of the rising influx of tourists, the growing economy and the rising stock market.'
Chan forecast retail rents in Hong Kong will rise by between 11 per cent and 18 per cent this year compared with a year ago, while Colliers expects an increase of 20 per cent this year.