Consumers to feel pinch of rising rents

RISING prices in shops will be the result of Hong Kong's soaring retail rents, the president of the Retail Management Association, Joseph Yap has warned.

Faced with rental increases of up to 40 per cent, he said consumers should prepare for higher prices during the next three months as retailers had no alternative if they were to remain profitable.

''They [the retailers] would be stupid if they did not pass the cost on to the consumer and, given the size of the rent increases, they have no other option.'' Laying down a challenge to the landlords he said: ''This is a time for landlords to review the situation unless they want to see their premises empty for the next three years.'' Emphasising the seriousness of the situation, he said: ''Above certain levels there comes a point when I might as well say 'forget it, I might as well not be in this business'.'' Consumers would be the losers as chain stores reduced the number of branches they offered, limiting their size and therefore product range, he said.

''Already we are seeing the closure of prime-located shops by major chain stores and you can expect this to continue,'' he said.

While declining to put a figure on the price rises in the shops, he said the real increase would not be reflected in the Retail Price Index because of the ''unbalanced way in which it was constructed''.

There was anecdotal evidence of slowing rental increases, however, for companies such as Yaohan who had been on long leases and had received a demand from landlord Sun Hung Kai Properties for a rise from $18 per square foot to $100. The decision to move or contract was inevitable, he said.

Other Japanese department stores would be feeling the pinch since many had locked into 10-year fixed rental agreements when they set up shop in Hong Kong in the mid-1980s and would now be seeing those up for renewal, he said.

A contraction in the industry was inevitable as retailers responded to rising rentals and new entrants were dissuaded from setting up in the territory, he said.

Mr Yap said the situation was not new to Hong Kong, being reminiscent of market conditions in the mid-1980s, but he felt there was a real possibility that running a full service department store would become unviable if costs continued to rise on their present trend.

The trend of de-centralisation among retailers was the result of rising rental costs in prime locations, but also the increased purchasing power of shoppers living in the satellite areas, said Albert Chan director of retail at property agent Vigers.

He said the effect of rising rentals was to reduce the number of outlets the chains ran in prime locations such as Tsim Sha Tsui and Causeway Bay but for prestige reasons they were obliged to retain a presence.

He thought retailers who could not afford the cost of their own shop unit would increasingly take concession space in shopping arcades as an alternative.

Pacific Place marketing manager Paul Husband, said he had not witnessed a trend of retailers reducing their floor space and the mall was still faced with more applicants to get in than retailers leaving.

He ascribed this to a rent scheme based on the turnover achieved by each individual store rather than a flat rate increase.