A drop in Chinese tourist numbers is driving down shop rentals in Hong Kong, with vacancies increasing in the same prime areas that just three years ago passed New York’s Fifth Avenue to become the world’s most expensive retail real estate.
Spooked by cross-border tensions and pro-democracy protests beginning last year, tour groups visiting Hong Kong from China plunged by about 80 percent this month, dealing a blow to retailers who built their businesses on the visitors’ once insatiable demand.
A Chinese government crackdown on lavish spending, which shows no signs of letting up, has also encouraged tourists to shop further away from home, just as drops in the yen and the won make Japan and South Korea more attractive destinations.
That has further dimmed the appeal of Hong Kong’s Causeway Bay, where renting a 46m2 space — the size of a school classroom — can cost HK$500,000 (US$64,481) per month.
“If they do not cut the rent, I will leave,” said the head of a consumer goods chain that has a shop in Causeway Bay.
Revenues have fallen by 30 percent over the past year as the number of Chinese visitors fell by half, he said.
“We cannot bear the costs,” he added, declining to be named as he did not want to highlight his company’s financial situation.
Hong Kong retail sales in January fell to their lowest since 2003, which prompted more retailers to negotiate lower leases or move out, property agents said.
The sales decline also coincides with plans by several luxury retailers, including Chanel and Compagnie Financiere Richemont SA’s Cartier, to cut prices in Asia to counter the plunge in the euro.
“Their businesses are not doing so well, so they decided to essentially hand the keys back to landlord,” said Tom Gaffney, head of retail at property consultancy Jones Lang LaSalle.
Property consultancy Savills said average prime street shop rentals last year fell 8.5 percent year-on-year, as the number of Chinese tourists began to fall.
This year, a luxury goods retailer in Causeway Bay managed to negotiate a 15 percent discount on its lease, while another retailer renewed their contract at the same terms, a property agency involved in the deals told reporters.
The slowdown is forcing many retailers to adapt.
Paul Tang (鄧子強), the owner of a tiny shop in the heart of Causeway Bay, said sales of his eclectic mix of banned Chinese books and milk powder fell 25 percent this year, forcing him to courier goods to clients in China.
“It is no use sitting in my shop and crying,” he said.
A possible restriction by authorities on multiple daily visits to Hong Kong could further add to the pressure on landlords more exposed to the retail market, such as Hysan Development Co Ltd (希慎集團), Wharf Holdings Ltd (九龍倉) and Sun Hung Kai Properties Ltd (新鴻基地產).
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