Mass-market retailers start to return to prime shopping districts

The softening retail leasing market in Hong Kong is encouraging the gradual return of mass-market retailers and mid-range brands to prime shopping districts, with a coffee shop taking up space in Wan Chai formerly occupied by a jewellery retailer.

As luxury brand retailers consolidated businesses in the wake of a drop-off in mainland Chinese shoppers, landlords had started to become more realistic and flexible in their asking rents and welcomed different kinds of tenants, said Helen Mak, a senior director at Colliers International.

"We see that some mass-market retail chains are taking advantage of the current market slowdown for opportunities to return," she said.

Mak said more mass-market retailers and mid-range brands, which had been forced to move to secondary or tertiary locations to make way for luxury-market retailers, could return, "but it will take time".

In the latest example, Pacific Coffee has taken the ground-floor shop previously occupied by Butani Jewellery at 11 Morrison Hill Road. Hotel Bonaparte by Rhombus occupies space above the shop.

Property consultants described it as an atypical case that would not be a benchmark deal for other landlords. A coffee shop would benefit the hotel business, they said.

According to government records, the property at 11 Morrison Hill Road was bought by Nigon Hong Kong in 2007. A director of Nigon is Papu Udharam Butani, the founder and chairman of Butani Jewellery.

Another example was pharmacy chain Watsons leasing about 10,000 sq ft of shop space last month on the ground, first and second floors of Fortune Centre in Yun Ping Road, Causeway Bay, for HK$2.5 million a month.

Agents said that was 38 per cent below the landlord's asking price of HK$4 million.

Watsons was forced to make way for US-based fast fashion retailer Forever 21 in Capitol Centre in Causeway Bay in 2011.

Midland Realty said landlords of street shops in Wan Chai and Causeway Bay had cut rents by 2 per cent to 43 per cent in recently renewed contracts.

The city's tourist arrivals and retail sales have fallen in recent months, partly because of a drop in the growth rate of mainland Chinese visitors and their spending. For the first three months of the year, retail sales shrank an average of 2.3 per cent in value compared with the same period last year, Financial Secretary John Tsang Chun-wah said on Monday. There was a 3 per cent year-on-year drop in March alone.

Looking ahead, property consultants see the growth of food and beverage chains as a market driver. CBRE said Hong Kong continued to see an active expansion of mid-range brands, with some overseas food and beverage operators, in particular, entering the market.

"Retailers of new dining concepts have shown great interest in opening new shops in Hong Kong to take advantage of the growing expenditure of local consumers amid the positive consumption market," said Joe Lin, CBRE Hong Kong's executive director for retail services.

"More international retailers are deciding to locate their first Asian store in Hong Kong. Currently we have clients from Japan, Korea, Britain and Russia actively looking for new space to start their business in Hong Kong."

However, Lin said he did not believe food and beverage chains would take up spaces occupied by luxury retailers because they could not afford such high rents.