Hong Kong property

Hermes pockets US$61.2 million profit from sale of retail shops in Hong Kong

The luxury goods maker had bought the four shops in 2002 for US$24.2 million

PUBLISHED : Tuesday, 13 March, 2018, 7:32am
UPDATED : Tuesday, 13 March, 2018, 7:32am

French luxury goods maker Hermes has made a profit of HK$480 million (US$61.2 million) from the sale of its flagship stores in Hong Kong’s Central district, after recently relocating to a leased building nearby in the face of sluggish sales.

It sold four shops, Nos 6 to 9, on the ground floor of The Galleria at 9 Queen’s Road for HK$670 million to a group of companies under the name of Infinite Gain, according to Land Registry data. Infinite Gain is wholly owned by real estate fund Chelsfield Asia. The deal, to be completed by the end of this month, represented HK$89,300 per square foot.

The maker of the Birkin handbag bought the four shops, which total 7,500 square feet, for HK$190 million in 2002.

The transaction “will certainly serve as a benchmark in the core business district,” said Michael Chik, managing director of agency Sheraton Valuers. But he said retail rents have fallen at least 40 per cent in the area in the light of slowing sales of luxury goods.

“Retailers are wary of repeating their blind expansion strategy of three to four years ago. Today, we notice only retailers selling sportswear are looking for expansion as rents are falling sharply,” he said.

Chik said asking rents for another 1,614 sq ft shop at The Galleria have dropped 50 per cent to HK$250,000 a month from the previous HK$500,000.

“No potential tenants have yet viewed this shop since it became vacant this month,” he said. “So we are not sure if rents have bottomed out or not.”

Last month, Hermes moved to a three-storey, 10,000 sq ft store at Prince’s Building on Des Voeux Road, just a block away from The Galleria, at an estimated monthly rent of HK$4 million.

It had offered the shops at The Galleria for tender in 2016 after it decided to relocate, and its indicative price then was HK$1.5 billion.

For the buyer, the purchase “represents a rare opportunity to acquire a sizeable ground floor shop on one of Central’s prime streets at a fair price point,” said Denis Ma, head of Research at JLL.

He said a sustained recovery in inbound tourism to Hong Kong and a resilient domestic consumer base, coupled with the willingness of vendors to negotiate on asking prices, is drawing property investors back to the retail sector.

Chelsfied Asia and Hermes were unavailable for comment.