Retailers selling luxury watches and jewellery are rejecting the idea of paying big premiums for prime street-front shops, as mainland shoppers spend less on expensive gifts.
Two years ago top-tier retailers were willing to pay 30 to 40 per cent above market rate for a prime shop to capitalise on an influx of mainland big spenders, said Joe Lin, an executive director of retail services at CBRE.
"As mainland visitors cut their spending in Hong Kong, they are growing reluctant to chase after high rents and landlords have to become more realistic in their asking rents," Lin said.
Some landlords are accepting below-market rates to attract a tenant.
Chu Yuet-wah, the chairman of Sincere Watch (Hong Kong), warned this month that revenue and net profit would decrease for the year ended March, because of the slowdown in the luxury market for watches.
Another firm, Oriental Watch Holdings, which sells top-end brands such as Rolex and Omega, also issued a warning, saying its operating profit for the year to March would be substantially lower than in the previous year because of the slowdown in the mainland economy, keen competition and an increase in general stock provisions.
The downbeat forecasts came after the Federation of the Swiss Watch Industry said exports of Swiss watches to Hong Kong, which is the industry's biggest export market, fell year on year by 7.8 per cent to 299.6 million Swiss francs (HK$2.4 billion) in March. Those to the mainland, its No 3 market, dived 31.4 per cent to 113.1 million francs.
Despite strong sales over the Lunar New Year, property company Savills said retailers remained cautious, with expansion plans slowing in some first-tier streets in Central and Causeway Bay over the past few months. Jewellery retailer Chow Tai Fook recently leased a 4,500 square foot street-level shop in Yee Wo Street, Causeway Bay, for HK$2 million a month, 40 per cent below the landlord's original asking price of HK$3.3 million.
Lin said he expected the growth in retail rents would be just 8 per cent this year in Causeway Bay, Central, Tsim Sha Tsui and Mong Kok, down from 9 per cent last year, and a rise of 29 per cent in 2011. Sales of retail space have fallen sharply since the government doubled stamp duty on the purchase of both residential and non-residential properties from February 22.
The number of transactions for shops plunged to 86 as at May 29, from 320 in February when the extra stamp duty took effect, according to Midland IC& C, which specialises in sales and leasing of industrial, commercial and retail properties.
The total value of retail property transactions also tumbled, to HK$2.1 billion, from HK$5.22 billion in February, it said.
There were 12 default cases, where buyers walked out of retail property transactions in anticipation of a further fall in prices.