NewDrop in retail sales to drive Hong Kong shop rents lower

In what is one of the largest single-brand shops in Hong Kong, Prada opened a two-storey store in Russell Street, Causeway Bay, before the Lunar New Year, 18 months after the Italian luxury brand signed a leasing contract reportedly worth HK$9 million a month.

That was at the peak of the city's retail sales sector, but now the brand - like all retailers - is contending with Hong Kong's worst slump in sales since the 2003 Sars outbreak.

If that was not bad enough, Prada's opening comes on the heels of renewed talk of limiting visitor numbers from mainland China, the major buying force for luxury retailers in the past decade. The city received 60.8 million visitors last year, 47.2 million from mainland China.

"Retailers of luxury goods have been facing slow sales over the past 18 months as consumption patterns changed due to mainland China's slowing economy and anti-corruption campaign. The trend will continue in the wake of falling consumption by mainland Chinese tourists," said Jacqueline Tong Chun-ling, an executive director of property investment firm Gale Well Group, which owns retail space in Wan Chai, Tsim Sha Tsui and Jordan.

If the space Prada occupies were offered for lease now, achievable rents could be 10 or 20 per cent lower, said Tong, citing downward pressure from the sales slowdown.

Hong Kong saw a decline of 14.6 per cent in retail sales in January, the city's worst monthly performance since April 2003 when retail sales fell 15.2 per cent. Jewellery, watches, clocks and valuable gifts were among the hardest hit in January, sliding 21.4 per cent.