Hong Kong’s high street shop rents fall up to 43 per cent from their peaks

Hong Kong’s high street shop rents have fallen as much as 43 per cent when compared with the peak levels in the fourth quarter of 2013, according to international property consultant DTZ/Cushman & Wakefield.

Plagued by smaller growth in tourist arrivals and a decrease in sales of luxury products, retailers have been facing a challenging business environment and find the rents they are paying in prime street shops as too expensive. Some retailers requested landlords to cut rents while others opted to relocate.

As a result, the retail high street rents in Causeway Bay, Tsim Sha Tsui, Central and Mongkok had gone down by 26-43 per cent as of the third quarter from their respective peak levels in the fourth quarter of 2013, or during lease renewal compared to the last rent a few years ago, said Kevin Lam, DTZ/Cushman & Wakefield’s Head of Business Space, Hong Kong,

One of the examples was US luxury brand Coach which closed their shop in Central by the end of last month. The shop will be occupied by sports brand Adidas at a rent about 22 per cent cheaper.

The Hong Kong retail sector outperformed over the last decade with strong sales growth for high-end products. This generated an increase of 213 per cent in average rents from 2003 to 2014 for core street shops in Causeway Bay, Tsim Sha Tsui, Mong Kok and Central, according to CBRE.

But the tailwind for luxury retailers has slowed since 2014, hindered by a range of factors including Chinese government’s anti-corruption measures, milder GDP increases in China, weakening Asian currencies and the loosening of policies on travel for mainland Chinese. The city’s retail sales by value fell 5.4 per cent in August from a year earlier, from the decline of 2.9 per cent in the previous month amid the slowdown of inbound tourism, according to the government data.

However Mr Lam expected that high street retail rents would begin to stabilize “because a round of lease renewals on the core streets has just finished, shop front rentals are more likely to see a milder change within the single-digit range than a drastic fall as in this year.”

“International brands remained interested in taking shop fronts at strategic locations and they continued to look for sites with a bigger discount in rents. When rents come down to a certain level, more brands will be more active during lease negotiations, “ said Lam.

Amid the generally bearish market, the food and beverage (F&B) sector had recorded steadily growing sales during the past few years, said Lam.

CBRE also said in a report that mid-market retail brands are set to take over luxury brands as the main driver of retail demand in Hong Kong.