Hongkong and Shanghai Hotels (HK&SH) - which owns the Peninsula - has rejected a plea for a rent reduction from retailers in the hotel's plush shopping arcade, saying its original 15 per cent offer is as far as it will go. About 20 retailers have banded together to demand a sizeable rent reduction, claiming the hotel is charging the highest rents in the world at a time when business has more than halved. 'At the top end, a number of tenants are paying $700 per square foot, which is more than double the prevailing rents in New York, London and Tokyo,' the retailers said in a letter to the Peninsula hotel's management. The dispute between the two sides has become increasingly acrimonious, with HK&SH accused of being intransigent and ignoring the plight of the retailers during the present economic downturn. In response to the letter, HK&SH issued a statement yesterday saying an earlier offer of a 15 per cent rent reduction fully reflected the dire state of the market. 'Hongkong and Shanghai Hotels has taken the pro-active initiative to offer a 15 per cent reduction in rentals across the board to existing retail tenants with whom we have been enjoying a long-standing excellent relationship,' the hotel said. The hotel said it was aware of the present market downturn and was adopting a flexible approach to the situation. 'Given the present economic situation and the downturn in tourist arrivals, HK&SH adopts a flexible approach toward tenancy renewals and new lettings and will take full account of the market fundamentals in negotiations,' the hotel said. 'These measures have been made after a thorough consideration and reflect the company's continuing concern and support for the tenants.' The hotel also promised to explore additional ways to attract more customers to the shopping arcade. Roland Macek, managing director of Shiamas - the sole agent for brands such as Versace - said business in the hotel had dropped by as much as 70 per cent since this time last year. Mr Macek said HK&SH should cut rents by 50 to 60 per cent to give retailers a chance of survival. Mr Macek said he was not at all surprised by the hotel's response. 'If they want to stick to 15 per cent, that is their choice,' he said. 'It doesn't surprise me. Everybody is entitled to their opinion.' Tenants in the swank arcade in one of the world's most prestigious hotels have threatened to pack up shop unless rents are reduced. 'I personally feel that people just won't be able to pay the rents they are being asked to pay,' Mr Macek said. 'Business volume is just not present in the arcade. 'I just don't see people being able to keep on absorbing these kinds of losses.' He estimated 20 to 30 per cent of existing retailers in the Peninsula would remain as they had to maintain a presence in the hotel. 'These people stay in the hotel because it is a strategic location for their worldwide distribution,' he said. Many other tenants would pack up and leave, he predicted. 'There are a lot of shopping arcades that are now 40 to 50 per cent vacant and that could happen to the Peninsula,' Mr Macek said. 'I hope they do something before that happens because it would be a pity.'