Winners and losers as Hong Kong rents scale new heights
By George Chen
The opinions expressed are the author’s own.
When you walk around Hong Kong’s Central commercial and business district these days, you may notice a number of stores are holding “removal sales”, which means they can no longer remain in the same location. The reason? In most cases, just blame soaring rents.
Many analysts have forecast declines in residential and commercial property prices in Hong Kong for next year, although at a stable pace rather than a sharp drop. This may be true for some suburban areas where purchase options are more plentiful than those in downtown areas, but until that happens, prices are likely to keep rising, at least for the rest of the year.
A couple of years ago, mobile phone industry leader Nokia took a moderately sized space on Russell Road in Causeway Bay just opposite Times Square, one of the busiest shopping districts in Asia, for its flagship store in Hong Kong. Local media said the store used to be one of Nokia’s busiest in Asia, thanks to mainland Chinese travelers. But the good old days are going to end soon.
The Hong Kong Economic Times reported on October 27 that British luxury brand Burberry had signed a new lease with the owner of a site currently occupied by Nokia. Burberry is said to have agreed to pay HK $6.5 million (about US $836,600) per month for the two-floor 5,200 square foot space,versus the HK $1.8 million that Nokia is paying.
When the news came out, the reaction from the market was quite naturally, “Wow”. One reader on Sina Weibo, China’s most popular micro-blogging service, wondered: “How many coats and bags will Burberry need to sell to cover the monthly rent?” In Hong Kong, a coat or bag at Burberry usually sells for about HK $10,000-15,000. You can do your own calculations.
Burberry is not alone.
Bidding wars for prime retail locations in Hong Kong have been heating up in recent months. Some analysts call this a typical “changing hands season” for Hong Kong’s high-end property market. The only key to victory is price.
Asia’s leading fashion brand Shanghai Tang opened its first shop in the mid-1990s on the ground floor of the historic Pedder Building on Central’s Pedder Street. The same location will soon be home to a new name.
U.S. fashion brand Abercrombie & Fitch, known for welcoming customers to its flagship store on Fifth Avenue in New York City with muscular male models, will reportedly pay about $1 million per month for the location, 2.5 times more than the rent Shanghai Tang paid.
Despite the surprisingly fast rising rents in Central, Shanghai Tang, now owned by Richemont, one of the world’s leading luxury goods groups, is keen to stay in the Pedder Building, but has decided to move upstairs where rents are cheaper, local media reported.
Luxury brands are rushing into Hong Kong to tap the fast-growing demand from middle-class consumers from mainland China who swarm to Hong Kong to buy luxury products at prices far cheaper than in mainland China. U.S. upscale bag maker Coach is said to be planning to float shares in Hong Kong in the wake of Prada’s successful listing in the financial centre.
Local Hong Kong people and even some government officials and legislators in the former British colony have already complained about the quantity of money flowing into Hong Kong from the mainland, pushing property prices higher than the city’s towering skyscrapers.
Perhaps, the fast-growing retail rents willingly paid by global luxury brands can also be blamed on the luxury-loving mainland consumers who are becoming their best customers.
George Chen is a Reuters editor and columnist based in Hong Kong.
Photo: The closing Shanghai Tang store in Central, Hong Kong, seen on Oct. 26, 2011. REUTERS/George Chen