George Chen

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

By George Chen
The opinions expressed are the author’s own.

It’s been a month since my last column on Reuters.com as I have been on the road for a while.

When I travel in New York and London, my identity is more like that of a consumer with a dash of journalistic observation. People usually say Hong Kong is a shopping paradise but in my view, Hong Kong is no longer my favorite city for shopping. For U.S. fashion brands such as Cole Haan or Banana Republic, prices are much cheaper in New York. It’s the same for London if you’re a big fan of Burberry or Paul Smith.

The American people I know complain far less about the financial crisis than two or three years ago. Instead, some of them say they actually enjoy some of the benefits. Rents are cheaper. Food is cheaper. Transport companies are unable to raise ticket prices.

Prices for some nice homes in the historic Embassy Row, Washington D.C., look attractive to me. How much can you buy if you have $1 million? You can probably buy a nice house in downtown Washington or a tiny flat in Asia’s financial centre Hong Kong. $1 million is no longer a dream for many Chinese people thanks to the yuan’s appreciation. Let’s face it — America is cheaper and the Chinese are getting richer.

But the Chinese have their own problems; they don’t feel that rich at home.

The inflation reading for June hit a three-year high of 6.4 percent year on year, and Goldman Sachs said we may see further highs in July or even August. During his recent trip to Britain, Chinese Premier Wen Jiabao, often known as “Grandpa Wen” in China for his kind and down-to-the-earth image, claimed the inflation problem had been solved. He may need to think twice after seeing the angry public reaction in China on the rapid rise in consumer prices, especially food.

You may also want to hear what China’s central banker governor Zhou Xiaochuan said about inflation: he asked the media and public not to “overreact” to the June figure and apparently tried to prove he was doing a good job.

The central bank had many things to deal with, not only inflation, for example international payments, he said at a recent meeting. Mr. Zhou, I respect you as an intelligent and influential central banker, however, to ordinary Chinese such as my parents in Shanghai, your comments on inflation simply make them feel almost hopeless about the outlook for their purchasing power.

Perhaps the Chinese Communist Party, which is celebrating its 90th anniversary, wants to send this message — it’s not that bad to be Chinese. Go abroad and buy whatever you want and you will be proud of holding yuan and being Chinese.

Perhaps I’m too simple and naïve?

George Chen is a Reuters editor and columnist based in Hong Kong.

File photo: Shoppers walk up Fifth Avenue in front of the Cartier jewellery building in New York, December 7, 2008. REUTERS/Chip East

By George Chen
The opinions expressed are the author’s own.

Hong Kong is a real shopping paradise where people in the financial industry apparently have privileges not just because they can probably afford to buy more top brands, but they can also buy them exclusively and at a discount, at least for this Christmas.

This week, an email from Italian luxury maker Salvatore Ferragamo, exclusively inviting Morgan Stanley staff in Hong Kong to join its pre-Christmas sale, has caught the attention of their jealous peers at rival banks.

With the exclusive invitation, a Morgan Stanley employee in Hong Kong could visit a store of Salvatore Ferragamo in the former British colony to buy its bags, shoes, belts or other luxury products at a special discount  before the items were put on sale for the public.

“Please present the business card of Morgan Stanley before making your purchase,” Salvatore Ferragamo said in the invitation.

My Morgan Stanley friends in Hong Kong told me they didn’t remember such promotions last Christmas when everybody in the financial industry was still deeply worried about a “double dip” and unsure when the end of the financial crisis might come. This year is quite different. At least Salvatore Ferragamo seems certain the buying power of Morgan Stanley’s staff should have now recovered.

In fact, financial professionals at other banks and funds such as Goldman Sachs, Citigroup and Nomura in Hong Kong have also received many coupons and invitations to join various pre-Christmas sales events. Those  usually will be extended to the general public afterwards, but by then consumers might complain that the choice of products is limited.

Just this week alone, there will be a so-called “Bargain Sale” for Christian Dior fans in Hong Kong, with up to 70 percent discounts for selected handbags. At the same time, Furla will run a “Showroom Sample Sale” event in Causeway Bay, one of Hong Kong’s busiest shopping areas. Of course, those events are by invitation only, and guess who gets the invitations? From the information I get from my friends in the banking and fund industry, they are the target audience.

I asked a friend who works for the Hong Kong government if she also gets such invitations. “Rarely. And I got them only because my friends in the banking industry forwarded those emails to me. Of course I am not their target clients,” she replied.

The exclusive invitation from Salvatore Ferragamo for Morgan Stanley staff in Hong Kong makes my friends working for local brokerages and banks envious. “Why Morgan Stanley? I think they are rich enough and won’t care about a 20 or 30 percent discount. I am definitely more price sensitive than they are,” said an analyst working for the Hong Kong office of a big Chinese bank.

Ferragamo, does it make sense? As of this posting, Ferragamo had not responded to an emailed request for comment.

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A pre-sale invitation from Salvatore Ferragamo for Morgan Stanley staff in Hong Kong, obtained by Reuters on November 30, 2010