Despite reduced spending by mainland visitors, exorbitant retail store rents in popular shopping districts are holding firm because of big brand-name penetration and limited space supply, analysts say.
"Retailers are cautious on store expansion, due to lower consumption sentiment locally and slower growth in the number of tourists," said DTZ Debenham Tie Leung head of retail in Hong Kong Kevin Lam Ying-wai.
"More retailers are moving to less busy streets, but international brands are competing from high-street stores."
In May, the number of mainland visitors rose 19.4 percent year-on-year, easing from an annual gain of 23.9 percent in April, according to Hong Kong Tourism Board data.
Amid a gloomy economic outlook, retail sales in the territory rose 8.8 percent by value in May year-on-year, to HK$36 billion, compared with a 11.4 percent increase the previous month.
Mainland visitors accounted for about 33 percent of the HK$406 billion total retail spending in Hong Kong last year.
The four most popular shopping districts remain Central, Causeway Bay, Tsim Sha Tsui and Mong Kok. Scores of top brands from the United States and Europe continue to look for retail space in Central and even plan to expand to Wan Chai, said Terence Chan Yiu-fung, Jones Lang LaSalle's local director for the retail sector.
Last month, Seattle-based fashion brand Tommy Bahama signed a lease and will open its flagship store in Wan Chai, paying HK$1.1 million rent per month for the 5,800-square-foot unit, or HK$190 per square foot, in the autumn.
Meanwhile, US-headquartered Abercrombie & Fitch is planning an August 11 grand opening for its first Hong Kong store in the Pedder Building in Central. The casual wear retailer signed a lease last year to pay a staggering HK$7 million a month, or HK$551 psf, rent to take over the 12,700-sq-ft premises previously occupied by Shanghai Tang.
Among other prominent brands, Gap is splashing out HK$385 psf for a shop on Theatre Lane in Central, while Burberry is leasing space in Pacific Place in Admiralty for HK$4 million a month, or HK$200 psf. Forever 21 has taken premises in Jardine's Bazaar, Causeway Bay, at HK$215 psf monthly. H&M inked a nine-year contract for a shop on Queen's Road Central at HK$114 psf.
Russell Street - across from Times Square in Causeway Bay - continues to command the highest retail rents in Hong Kong, averaging HK$1,260 psf monthly, lagging only Fifth Avenue in New York, where rents averaged HK$1,463 psf last year.
The 40-story mixed-use Hysan Place, at 500 Hennessy Road, scheduled for completion next month, will provide 17 floors of retail space, but most of its total 710,000 sq ft has already been spoken for. Eslite book store is reportedly leasing 40,000 sq ft on three floors, while US fashion brand Hollister California plans to open a 20,000-sq-ft outlet next year in the new mall.
The upscale Hysan Place opening is expected to affect smaller shops in the Hennessy Road vicinity, pushing them out to neighboring streets such as Yun Ping Road, Kai Chiu Road, and Lee Garden Road, Jones Lang LaSalle's Chan said.
Monthly rent for a 10,000-sq-ft shop recently secured by cosmetic product chain Bonjour rose to HK$5 million, up fivefold from the HK$1 million previously paid by apparel chain G2000.
Hysan Place will be the only new retail supply put on the market in the four traditional shopping areas this year.
Looking ahead, a total gross floor area of 1.5 million sq ft of prime shopping malls will be supplied in the next four years. However, only 28 percent, or 673,000 sq ft, will be launched in core areas such as Central and Causeway Bay, said Jones Lang LaSalle head of retail Tom Gaffney.
"Rents on Pak Sha Road in Causeway Bay doubled from the last two-year contract, and rents on Wellington Street in Central jumped more than 70 percent," said Midland Commercial executive director Daniel Wong Hon- shing.
Chan said Wan Chai is likely to become the next busy shopping district as some jewelry stores have opened on Lockhart Road. He noted one jeweler is paying monthly rent of HK$1 million for 1,000 sq ft of space - about 10 times more than a neighborhood restaurant of similar size.
More investors have turned to the retail market due to government controls on the residential market and expectations of declines in office rents.
Cantopop star Leo Ku Kui-kei reportedly bought a shop at 22 Lyndhurst Terrace, Central, for HK$54 million, while Nicholas Tse Ting-fung is said to have purchased a jewelry store nearby for HK$91.3 million.