Mainland Chinese's declining spending hits rents for Hong Kong's street-level shops

Rents for street-front shops in prime locations are plunging as tenants and landlords adjust to a fall in mainland visitors that has triggered a slowdown in the growth of retail sales in the city.

Retail sales by volume were up 10.2 per cent year on year in March, down from a growth rate of 21.9 per cent in February, according to the latest government data. Growth in sales of jewellery, watches and high-priced gifts slowed even more sharply, falling from 27.9 per cent in February to 9.8 per cent in March.

Official data for April is due out this week, but retailers of expensive watches and jewellery say sales of items priced between HK$1 million and HK$5 million have dropped by as much as 15 per cent since March as the slowing mainland economy and Beijing's campaign to curb extravagant spending by officials cut into spending by mainland visitors.

"For the past several years, the aggressive opening of new jewellery and luxury watch stores in locations such as Causeway Bay saw landlords lifting rents for ground-level shops sky high … to cash in on an influx of mainland shoppers," said Yam Wing-yin, chairman of real estate agency Sheraton Valuers, which specialises in selling and leasing shops.

"Today landlords have become more realistic and are lowering their asking rents."

Tenancies up for renewal are being negotiated at big discounts to the jaw-dropping rent rises originally sought by landlords.

Watch and jewellery retailer Chow Tai Fook recently leased a 4,500 sq ft street-level shop in Yee Wo Street, Causeway Bay, for HK$2 million a month. Although that was 10 per cent up on the rent paid by the previous tenant, King Fook Jewellery, it was 40 per cent below the landlord's original asking price of HK$3.3 million.

Hong Kong's oldest retail chain, Sincere Department Store, earlier this month rented a 21,000 sq ft, two-storey outlet on Percival Street for HK$2.1 million a month, about half the HK$4 million sought by the landlord.

Sheraton Valuers' Yam said limited supply of triple-A retail space in Russell Street, Causeway Bay, Canton Road in Tsim Sha Tsui and Sai Yeung Choi Street in Mong Kok would ensure that rents in these locations would not come under downward pressure.

Tenants who cater for local customers have also seen sales affected by the spending slowdown and are digging in against big hikes sought by landlords.

Joyce Peng, who runs a 400 sq ft live-music bar, Joyce is Not Here, in Soho, said spending by her customers was down 10 per cent. Despite that, she said the landlord intends increasing the rent from HK$38,500 a month to HK$68,000 when the lease comes up for renewal at the end of June.

"It is outrageous. Rents in the surrounding area have begun easing … I can only afford to continue here at a rent of HK$45,000 a month," she said.

Maureen Fung Sau-yim, Sun Hung Kai Properties' leasing department general manager, said it would be healthy to see overall rents adjusting to the present sales climate and stabilising at present levels. But she expected rents in the group's shopping malls to increase when agreements came up for renewal since demand for space remained strong, and existing tenants continued to enjoy growth in sales because of their location.
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