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Friday, September 18, 2015, 08:50

Mid-tier retailers set to take up the reins

By Luo Weiteng in Hong Kong
Mid-tier retailers set to take up the reins
Emperor Watch & Jewellery’s 12-year-old store on Russell Street, Causeway Bay, was shut on Sept 16. (Parker Zheng / Chin a Daily)

Mid-market retail brands in Hong Kong are set to emerge as the main driver of the city’s retail leasing business, replacing hard-pressed global luxury brands, which have taken the brunt of sluggish retail sales and soaring rents and forced to pull down the shutters prematurely.

The closure of leading local retail chain Emperor Watch & Jewellery’s 12-year-old store on Russell Street, Causeway Bay, on Wednesday possibly heralded the start of the withdrawal of luxury brand names from the city and the end of Hong Kong’s status as a center for Asian luxury goods.

New York-based leather goods maker Coach shut its flagship store in Central late last month — two years before its lease was up — while Chinese mainland footwear retailer Belle International Holdings Ltd closed its outlet in Tseung Kwan O the same day, and Swiss watch brand TAG Heuer terminated the lease of its store on Russell Street in early August.

In a report released on Wednesday, CBRE — the world’s largest real estate services company — noted that rents for high-end shops in the four prime districts of Central, Causeway Bay, Tsim Sha Tsui and Mong Kok had surged by 213 percent between 2003 and 2014, equivalent to a compounded average growth rate of 11 percent per annum.

As mainland visitors and local consumers shift away from luxury goods toward “affordable luxury” products in the next five years, mid-range brands, which had been forced to move to secondary or tertiary locations to make way for luxury-market retailers, are taking advantage of the current market slowdown for opportunities to return to prime shopping districts, said the report.

“More street-level stores are increasingly being left vacant as tenants ask for early termination of their leases. That has seen mid-range retailers snapping up more street-level shops once occupied by luxury brands in these core shopping areas, and paying 20 percent less rent,” said Joe Lin Chi-ho, retail services executive director at CBRE Hong Kong.

“The main driver of demand for retail space has now switched from high-end consumer goods to mid-market brands,” CBRE said.

Cosmetics retailer Lush will open its new 6,900-square-feet flagship store at Lyndhurst Terrace in Central in the fourth quarter of this year. Folli Follie has leased a 1,100-sq-ft store on Queen’s Road Central previously leased to Carlson Watch, and Pandora has taken up premises occupied by Royale Time on D’Aguilar Street for a similar rent, according to CBRE.

Helen Mak Hoi-lun, senior director at Colliers International forecast that rents for street-level shops will fall by 15 percent this year with Tsim Sha Tsui registering the biggest drop in commercial rents in the second half of the year. She believed that the softening retail leasing market will lead to greater tenant mix and make the local retail landscape more sustainable and diversified.

Mainland retailers are also keen to open stores in Hong Kong, with some food-and-clothing brands ready to secure street-level stores and shopping mall outlets in the city.

CBRE expects rents for street-level shops in prime shopping districts to come down by between 10 and 15 percent this year, posting the biggest decline since 2003, saying the local retail-leasing market will have to undergo a period of adjustment in the next two to three years.
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