HONG KONG—Retail tenants in Hong Kong have been requesting rent reductions of around 50 percent–and getting it, a new report from Everbright Property Investment Consultancy Limited revealed.
“For example, the Chow Tai Fook Jewellery shop on Sai Yeung Choi Street South in Mongkok was leased to Sa Sa Cosmetics for a monthly rent of 2 million Hong Kong dollars [$257,760] and the rent had been cut by more than 55 percent after being vacant for five months,” the report said.
It also confirmed that lingerie giant Victoria’s Secret would replace Forever 21 in what is the brand’s current flagship store at about half the previously negotiated lease rate.
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“Victoria’s Secret pre-leased the six-storey Forever 12 shop for 8 million Hong Kong dollars [$1.03 million] a month, 42 percent lower than the previous rent,” it said.
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Similarly, “Tissot watch renewed its tenancy for the shop on Haiphong Road in Tsim Sha Tsui for 550,000 Hong Kong dollars [$70,884] per month which was almost 40 percent lower than the previous rent.”
Recent months have seen the pull back of several from Hong Kong including the high profile store closures from Ralph Lauren, Coach, Prada, Abercrombie & Fitch and Forever 21. store closures are expected to continue for the next two years.
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However, there was a silver lining. Landlords that granted the cuts were somewhat optimistic, in that they expected rents to recover in the near future and were only willing to renew the tenancy for a shorter period for one to two years instead of the standard three.
Retail rents of four prime districts–Central, Causeway Bay, Tsim Sha Tsui, and Mongkok– have fallen an average 22 percent year over year, with Causeway Bay suffering the most. The area’s retail rents were down 26 percent in the fourth quarter of last year. Rent in the neighborhoods of Tsim Sha Tsui fell 19 percent, and Central and Causeway Bay dropped 16 percent.
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Average rents in Russell Street in Causeway Bay, once the most expensive commercial street in the world, now average 1,336 Hong Kong dollars [$172.18] per square foot, down nearly half of 49.1 percent since its 2013 peak of 2,014 Hong Kong dollars [$259.56] per square foot. For the most part, high-end jewelry and watch retailers have retreated from Russell Street and have been replaced by cosmetics brands.
Makeup brands along with sportswear, which are priced affordably, are seizing the opportunity, Everbright said. Kiko Milano and NYX opened their first street level shops in Hong Kong, while AmorePacific, which owns Laneige, Etude House and Sulwhasoo, in December reported double digit growth sales in Hong Kong for that month, the report said.
While 2017 will be a big improvement, Everbright said to still expect a minor adjustment through the first half. They estimate the overall retail rent market will decrease by up to 5 percent, as rent in the four prime districts drop 5 to 8 percent.
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