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Unlike mall operators, street landlords resort to cutting rents as retail sales decline further in Hong Kong. Photo: Franke Tsang

New | Hong Kong mall operators rejig tenant mix to fight sales slump while street landlords cut rents

Hong Kong's mall operators and street landlords are bracing themselves for a further slide in retail sales for the rest of this year, but the cards they can play under tough conditions are different.

For financially sound developers that own big malls in popular shopping districts like Causeway Bay, cutting rents is not their priority since occupancies are stable, particularly after some luxury street shops retreated back to the malls where rents are not as high as on the streets in general. Alternatively, they may consider renovation to reorganise its tenants to boost sales.

The malls that completed such restructuring last year have withstood this year's weak retail sentiment better than others. At Cityplaza in Taikoo Shing, owned by Swire Properties, retail sales saw double-digit growth in the first half of this year after a HK$100 million facelift was completed last year.

"The landlords need to look at where people are buying now and what they are buying to line their tenant mixes accordingly. Continuing to chase after luxury is probably not the right approach," said Tom Gaffney, the head of retail at consultancy JLL.

Government statistics shows that during the first six months of this year, sales of jewellery and watches tumbled 15.9 per cent annually, but food and beverages as well as consumer durable goods such as electronics saw sales growth of more than 7 per cent.

Analysts expected more new overseas brands, mostly mid-range retailers in sport apparel and fast fashion, to open flagship shops in Hong Kong, which would probably lure back some mainland tourists on the hunt for fresh and young brands.

"Shoppers and shopping malls are looking for something new. They look for novelty. If the brand has been in the market for a long time, its attractiveness will be diminished," said Joe Lin, the executive director of retail services from consultancy CBRE.

For street landlords looking for rental income, cutting rents is the key.

"It's never been a huge issue for street individual landlords on tenant mix. They have never been that picky. They are quite happy to take whoever is paying. So at the end of the day, it's about what they are willing to pay," Gaffney said.

In Causeway Bay, Emperor Watch and Jewellery is now paying a monthly rent of HK$2.76 million, or HK$1,632 per square foot, for a 1,700 sq ft shop at 8 Russell Street. It will surrender the lease next month, two years ahead of the expiry.

The shop will then be leased to Bonjour for HK$1.6 million, or HK$940 per square foot, per month, about 42 per cent lower than the current lease.

Street retail rents in traditional shopping districts have fallen to the mid-2011 level, a sign that the situation is returning to normal, according to researchers from commercial real estate consultancy Colliers. They expected a further 15 per cent decline in rents for the rest of the year.

As for luxury brands that once benefited from the gift-giving culture on the mainland, they were unlikely to hit peak sales again because of the consistent anti-corruption campaign, so they might just open one or two shops in prime shopping districts, Lin said.

This article appeared in the South China Morning Post print edition as: HK mall operators target tenant mix to counter slump