Shop operators take the stairs to avoid high rents

Smaller players plot survival strategies while ceding prime street-level space to luxury labels

PUBLISHED : Friday, 12 July, 2013, 12:00am
UPDATED : Friday, 12 July, 2013, 4:29am

Soaring street-level shop rents are hitting Hong Kong's cheap eateries and mass retailers as jewellers and other luxury brands compete for prime space.

To survive, many have been forced to extend their opening hours and move to basements or upper floors after being edged out by luxury labels.

McDonald's will move one of its restaurants to Leighton Centre in Causeway Bay after its lease for the 6,000 square foot outlet in Russell Street - the world's most expensive address for retailers - expires in September.

The space in Russell Street had been leased to cosmetics retailer Sa Sa International for HK$1.58 million a month, more than three times the current monthly rent of HK$500,000 paid by McDonald's, which signed its lease two years ago.

To retain its presence in the prime area, McDonald's will open a 4,000 sq ft outlet in the basement of Leighton Centre soon, according to people familiar with the deal.

The rent would be less than half that being charged for prime street-level shops. Sources said the asking rents in the basement were about HK$100 per square foot, compared with the HK$263 per square foot paid by Sa Sa for the Russell Street shop. Sa Sa last month said turnover for the group's retail and wholesale business rose 20.1 per cent year on year to HK$1.9 billion for the three months to June.

To generate higher sales, more restaurants and retailers, particularly in Causeway Bay, are either operating around the clock or staying open to as late as 1am.

In a written reply to the South China Morning Post, McDonald's said more than 110 of its restaurants in the city opened 24 hours a day. "We constantly identify suitable restaurant locations to meet customers' needs, and explore the opportunities to offer 24-hour service in strategically located McDonald's restaurants," the company said.

United States fashion retail chain Forever 21, which sells casual wear at affordable prices opposite Causeway Bay MTR station, has a monthly rent of HK$11 million for its more than 50,000 sq ft shop. It is open from 10am to 1am.

A director of retail services at consultancy Colliers International, Helen Mak Hoi-lun, said fast-food chains selling meals for HK$20 to HK$30 had to look for alternative sites to tackle soaring rentals. "We have seen more eateries relocated to upper floors in order to save rental expenses," she said.

Mak's Noodle, well-known for its wonton noodles that have attracted the likes of celebrity chef Anthony Bourdain, moved its outlet to Leighton Road from Jardine's Bazaar in Causeway Bay last year. The move was prompted by the landlord raising the monthly rent by 37 per cent to HK$220,000, from HK$160,000.

"We'd rather raise prices and maintain quality than use cheaper food substitutes," owner Barry Yung said.

Priced at HK$33 a bowl, the petite servings at Mak's Noodle may be noticed by wanton connoisseurs, when compared with other noodle shops. "We are targeting customers who want the best," Yung said.

The noodle shop initially chose Jardine's Bazaar because it is a historical street abuzz with eateries and high traffic flow. "The surge of mainland tourists meant high-end retailers and pharmacists took most of the space," he said.

"We started renting at about HK$50,000 per month, and that jumped to HK$160,000 in six years. When the renewal period came up, the landlord asked for HK$220,000. Landlords need to be more rational."

Amid limited retail space, rents in prime shopping centres rose 2.3 per cent and 2.5 per cent in high street shops in the first half of this year, according to Jones Lang LaSalle. Retail rents are expected to grow by up to 5 per cent over the coming six months.

"Mass retailers including food and beverage, non-luxury lifestyle and fashion retailers are going vertical [to top floors]," said Tom Gaffney, the head of retail at Jones Lang LaSalle.

"Higher interest in secondary and non-prime areas also pushed up rents in those areas, further narrowing the rental gap between traditional core and non-core shopping districts."

Rents in non-core areas of Causeway Bay surged up to 200 per cent per square foot in the past year due to the booming demand in secondary streets, Gaffney added.

Shanghai restaurant Yat Pang Heung, which opened in 1987 in a side street, is struggling to cope with a monthly rental rate that is now 20 times higher.

"It's very difficult to survive on Causeway Bay's streets," said the owner, who gave his surname as Shen. "Local eateries are being pushed out by restaurant groups and are moving upstairs."

With a renewal rent of HK$400,000 a month, Shen said he might close down the restaurant in a few months and enjoy an early retirement.

Rents are also hitting highs in Central, where French hair accessories brand Alexandre Zouari Paris will pay HK$1,200 per square foot a month when its lease comes up for renewal at IFC Mall.