Brand name vendors, in particular, are seeking space in prime locations as the economy picks up and new wave of mainlanders goes shopping THE INFLUX OF mainland tourists has boosted the retail leasing market, pushing shop rents up sharply. Many retailers are benefiting from the spending power of mainland visitors following the relaxed procedures allowing easier access to Hong Kong. With improved retail sales and better confidence in expanding operations, more retail operators have returned to the marketplace to find suitable premises, even though rents are higher. CB Richard Ellis director of retail services Joe Lin said estimated average shop rents increased by 18.5 per cent in the first nine months. Selected shops in prime locations achieved rental growth of 90 per cent or 100 per cent as aggressive retailers fought for high-street space, he said. Mr Lin expected to see further rental increases in the fourth quarter and next year, but the growth rate would be more modest because the rental base was already high in prime locations. The strengthening economy and consumer confidence had pushed up demand for prime retail premises, especially for space in popular tourist districts such as Tsim Sha Tsui, Mongkok and Causeway Bay. According to Jones Lang LaSalle, designer labels and jewellery retailers continued to be the major source of demand for retail space in prime shopping areas, benefiting from the strong influx of mainland tourists and improving consumer confidence. Rents of prime high-street shops grew 9 per cent in the third quarter compared with the previous quarter. Jones Lang LaSalle expects rents of retail properties in prime shopping areas Causeway Bay, Mongkok and Tsim Sha Tsui to further increase as retailers compete for prime outlets. The proposal by the Planning Department for the pedestrianisation of several streets in Causeway Bay triggered an increase in retail property transactions for street shops there, as retailers expected an even higher pedestrian flow. The positive momentum in the retail market should continue with the return of inflationary pressure in Hong Kong and the continued influx of mainland tourists stemming from the further expansion of the Independent Traveller Scheme to another nine mainland cities and three provinces. However, Mr Lin said the impact of mainland travellers on Hong Kong's retail sales could be less significant than it was immediately after the travel policy was first relaxed last year. With landlords raising rents sharply, there are renewed concerns that the less financially strong shop operators will face intense rental pressure when renewing their leases and will have difficulty surviving. Mr Lin said that instead of being driven out of the market, some retailers were being forced to consider finding shops in second-tier locations. He said several retailers had difficulty finding suitable shops at lower costs for their business expansion, especially when the supply of new retail properties remained limited. 'Many retailers prefer to stay at existing shops on renewal rather than going to new locations which often charge higher rents,' he said. Retailers of audio-visual products and jewellery were among the most aggressive in opening new outlets in prime areas. 'Leasing activity was particularly notable on Sai Yeung Choi Street in Mongkok, with retailers keen to exploit the crowd of mainland visitors and trendy youngsters who frequent the area,' Mr Lin said. 'Causeway Bay and Tsim Sha Tsui have also been heavily targeted, particularly among luxury brands keen for expansion in quality locations such as Russell Street and Canton Road.' As rents would not come down in the foreseeable future and aggressive retailers fought to secure shops in strategic spots, other retail operators would have to improve their leasing offers so they did not lag in this booming market, Mr Lin said. As consumer sentiment improved, the market could absorb higher product prices, which would alleviate retailers' rent burden to a certain extent, Mr Lin said. In recent years, major landlords have been making efforts to upgrade or reposition their retail properties by incorporating unique themes or improving the tenant mix to draw more shopper interest. Pioneer Centre in Mongkok was sub-dividing the retail space previously occupied by Ikea into smaller shops that specialised in telecommunications and computer-related trade, Mr Lin said. Sha Tin Plaza has turned the premises previously used by a Chinese restaurant into smaller units for retail and dining operations. Harbour City, Olympian City, Times Square, Telford Plaza, Pacific Place and Miramar Shopping Centre have repositioned and improved their trade mix.