Weaker luxury sales to force down shop rents in prime districts

Owners of street-level shops in prime shopping districts will feel the pain of slower luxury sales next year, with rents expected to decrease by up to double-digit percentages, according to international ratings agencies and property experts.

After enjoying soaring rental income in the past few years, street-level shop owners have seen the retail property market come off the boil this year as tenants suffer declining sales.

Sales of luxury goods were down 14.7 per cent year on year in the first nine months of this year.

As a result, luxury brands and cosmetics retailers have halted expansion plans, with some deciding to restructure their store networks. Gold and jewellery retailer Luk Fook is relocating its Causeway Bay stores to save on rents and cosmetics retailer Sa Sa is closing some stores in prime tourist districts, according to Fitch Ratings.

"We expect rents of street shops in prime areas, especially those in secondary streets, to decline substantially [next year] because leasing demand from these popular brands is shrinking," Fitch said in a report. "Street shops in prime areas are filled with tenants selling products targeting mainland tourists, whose spending power has fallen due to a crackdown on corruption and a slowing property market on the mainland."

Property investor Lai Wing-to, who owns dozens of retail properties, including a shop in Russell Street in Causeway Bay, said tenants had been affected by weakening luxury sales.

"Mainland buyers spent less on luxury watches and jewellery; that harms their sales revenues," he said. "Tenants used to compete for retail space by offering high rents, but that era has ended."