Over the past 10 years, retail property rents in Hong Kong have increased several times in locations like Causeway Bay and other prime shopping districts. These areas are home to luxury stores that attract numerous tourists from mainland China. These visitors spend freely and small businesses are being squeezed out as landlords and developers are looking to profit from this trend.
The shops in Causeway Bay charge an average rent of £1739.84 per sq ft. This is the highest amount in the world, according to a report released by Cushman & Wakefield.
Across the harbor in Tsim Sha Tsui, high-level retailers, including Chanel and Dolce & Gabbana pay £1023.42 per sq ft.
Retail rents in the central business district, where major banks including Goldman Sachs and UBS AG are located, are set at £1233 per sq ft.
Joe Lin, the Hong Kong-based senior director for retail services at CBRE said; “There’s only a limited supply of good spots and the rents are super high”
Developers are taking advantage of this opportunity to build new housing projects. Soundwill Holdings Ltd., a local builder completed a 163-unit apartment building in Tai Hang and had started constructing another one a block away. The company plans to build a 65,000 sq ft project with Henderson Land Development Co.
Soundwill Company Executive Director Dickson Lau explained, “It’s only a 15-minute walk from the world’s most-expensive shopping location. With all the new restaurants and apartments, there’ll be a huge upgrade in the standard of living in this area.”
Shares in Soundwill, which owns 20,000 sq ft of retail space on Russell Street, Causeway Bay, have increased by almost 11-fold since the beginning of 2009, after profit tripled in the period. Lau stated he expected rental income to double this year from 2012 rates.
To the west of Hong Kong’s business district, in Kennedy Town, Sai Ying Pun, and Sheung Wan, small business owners are also being pushed out. Business is very good for existing operators, but the cost of opening a new business in the area makes it too expensive for entrepreneurs to set up shop there.
Rents for ground-level shops in the fringe areas have increased several times over the past five years while remaining lower than those in areas such as Causeway Bay.
The average prime retail rents in Hong Kong may rise as much as eight per cent in 2013. This figure is down from the nine per cent growth in 2012 but a 27 per cent increase on 2011, according to CBRE.
Analysts are predicting that retail properties will out-perform office and residential as the best-performing sector of the Hong Kong property market this year. The financial services industry is shrinking, resulting in lower demand for prime office space.
However, not all retail properties will perform as well. Some luxury brand shops are beginning to move from street-level locations into less expensive shopping malls as rents increase. Mall rents are approximately one-third the amount of street-level rents in the same area.
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