Retail rents cut as landlords fight to keep tenants

Landlords of Hong Kong retail properties have been making substantial concessions in asking rents as sales of luxury products, including fashion, watches and jewellery, continue to cool, according to property consultants.

Rents of shops in prime shopping areas could see a modest decline this year following strong increases in the past decade, while rents second- and third-tier streets could see double-digit declines, said Kevin Lam, DTZ's head of business space, Hong Kong.

Most of the leasing transactions done in recent months either maintained the rental level of the previous contract or had returned to the level in 2011, Lam said.

A number of retail properties in Russell Street, Causeway Bay, will have contract renewals early next year.

"The change in rentals for these prime retail properties will give more hints to the rental trend in other districts in the near future," Lam said.

Total retail sales declined for a sixth consecutive month in July with a year-on-year drop of 3.1 per cent, according to government statistics released this week.

Sales of jewellery, watches and valuable gifts in July were down 22.2 per cent on last year, compared with a 28.2 per cent fall in June, 24.4 per cent in May and 39.9 per cent in April.

"Since the jewellery and watches sector, and to a lesser extent the fashion and accessories sector, have lent the strongest support to rental growth in prime locations, if sales of these two sectors can no longer sustain the current rental level, it will be difficult to find a retailer from other sectors to occupy the same spot with the same rent," Lam said. "This way, a bigger correction in rentals will be inevitable, even if the tourist volume is still growing."

The mainland's anti-corruption campaign and the changing spending patterns of mainland tourists have dampened demand for luxury goods in Hong Kong, with property consultant Savills saying some affected retailers were halting expansion plans.

Retail rents in Causeway Bay fell 3.5 per cent quarter on quarter in the second quarter of the year and those in Central fell 5.1 per cent, due to increasing vacancies and more early surrender cases, Savills said in a report released last month.

Mong Kok recorded a fall of 3.8 per cent quarter on quarter.