Are Russell Street’s glitziest days over, as Covid-19 mask shops replace Prada and Burberry in Hong Kong’s retail slump?

An expected relaxation of social distancing measures after April 20 and the distribution of consumption vouchers has led many landlords to raise rents and narrow discounts
‘Usually, monthly rents are below HK$200,000 for these mask shops. Any higher and they will not survive’

Hong Kong property

Lam Ka-sing

Published: 8:30am, 31 Mar 2022

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Russell Street, once the world’s most expensive retail strip and home to brands such as Burberry and Prada has seen its character change dramatically during the coronavirus pandemic.

The street was taken over by mask retailers that paid much lower rents following an exodus by the big names that once made Causeway Bay a shopping mecca for tourists. But this trend may be fading, as Hong Kong rents seem to have bottomed out, Midland IC&I said.

An expected relaxation of the city’s strictest social distancing measures after April 20, and the distribution of consumption vouchers by the government has led many landlords to raise asking rents and narrow discounts, said Lieman Leung, director of Midland Shops.

“Usually, monthly rents are below HK$200,000 [US$25,551] for these mask shops. Any higher and they will not survive,” he said. “So there will not be so many in the future.”

Mask shops mushroomed in Hong Kong’s four core shopping districts during the coronavirus pandemic. They recorded the largest increase in the short-term tenancies category, which more than tripled from 30 in the third quarter of 2020 to 113 in January this year, according to Midland. Mask shops increased from just one to 50 in this period. In short-term tenancies, however, landlords and owners can usually ask to exit a lease after one or two months.

There are six mask shops in Russell Street alone, according to news portal HK01. They may pay rents that are just 15 to 25 per cent of peak levels seen around 2013, Midland said.

For instance, a 300 sq ft shop was recently leased at HK$80,000 per month, 90 per cent lower than what accessories retailer Folli Follie paid for it in 2013, and 60 per cent below its previous lease, according to the Hong Kong Economic Times. Swarovski and Tag Heuer ended their leases on Russell Street recently, and the shop vacated by Tag Heuer was taken by a mask shop for HK$100,000 a month. This new lease represents a 94 per cent discount from a peak, HK01 said.

The departure of luxury brands that paid high rents has sent the rateable values – or the estimated annual rent value of a property – of shops in the street down by about a third, HK01 said.

The abrupt change in Russell Street’s character also comes as Financial Secretary Paul Chan Mo-po on Sunday forecast that Hong Kong’s unemployment rate for the three months ending in February rose to 4.5 per cent, its highest level in nearly five months.

Midland staff went to 156 streets in the four core shopping districts of Central, Causeway Bay, Tsim Sha Tsui and Mong Kok to count the number of vacant shops on two occasions in January and March this year. These districts had a total of 7,524 street shops as of this month.

The agency found that 829 shops were vacant in March, an increase of 82 shops from January this year, when the pandemic posed less of a problem. The vacancy rate of street shops rose from 9.9 per cent to 11 per cent in two months, its highest level since the first quarter of 2021.

At least 10 per cent of the shops in these areas have suspended operations because of social distancing measures and the compulsory closures of bars and beauty salons. Central saw the biggest proportion of suspensions at 17.2 per cent. Close to a quarter, or 468, of the food and beverage outlets have suspended operations in these districts.

Tony Lo, the CEO of ICI Property at Midland IC&I, said he had heard of landowners cutting rents for sectors that could not open their shops, such as catering and beauty, by 40 to 50 per cent, while others may have seen a 10 to 20 per cent cut.

About 20 to 30 per cent of tenants in some sectors would pay their rents late, possibly two to three months of rent, he added. Those with rents cut were less likely to pay late.

The agency expected that in the next six months, shop vacancy rates in the four core districts would hover at a high of 10.5 to 11.5 per cent on average. If bars, beauty salons and entertainment venues failed to reopen as scheduled, there would be a wave of closures in the next two months, Lo said.