Hong Kong: Luxury brands breaking retail leases

luxury retail hong kong

High-profile tenants are exiting Hong Kong’s luxury fashion hubs, including Russell Street, in droves—sending retail rents into a nosedive, the WSJ reports

  • Prada, La Perla, Louis Vuitton, and Chow Tai Fook are among the luxury retailers closing some of their Hong Kong stores later this year. 

As recently as Q2 2019, storefront leases on Russell Street cost an average of $2,745 per sq. ft. per year. But in the second half of 2019, retail rents dropped 15% to $2,338, per Kevin Lam, head of Hong Kong retail at Cushman & Wakefield. 

  • Rents are expected to decline another 10%–15% in 2020. 
  • For context, it’s the opposite in the Brew’s backyard. NYC retail rents rose 22% on average between 2007 and 2017.  

What’s behind the drop? It’s complicated. Due to ongoing political unrest and a weak yuan, visitors from mainland China fell by 58% last November. (Last year, shoppers from mainland China made up 78% of Hong Kong’s visitors.) Fewer tourists = a 23.6% decline in Hong Kong retail sales.

The confirmed human-to-human transmission of the new strain of coronavirus in China triggered a market sell-off Jan. 21 with luxury goods and retail stocks among those affected.

As the retail luster of Hong Kong dissipates, luxury fashion retail brands LVMH and Prada are dropping their leases. At the same time, prime retail rents fell late last year as social unrest impact commerce and discouraged many of the Mainland China visitors who back luxury demand from visiting, The Wall Street Journal reported.

Brokers indicated per the report that La Perla and Prada SpA both intend to leave Russell Street this year, and Prada is not forecast to renew a lease that concludes in the summer. Brokers also say luxury retailer Louis Vuitton plans to shutter its Times Square Mall location following the landlord’s refusal to reduce rents.

Chow Tai Fook Jewelry Group, a local jewelry heavyweight, plans to shutter as many as 15 stores in desirable tourist areas, with the inclusion of Mong Kok, Tsim Sha Tsui and Causeway Bay in the financial year starting April. The firm foresees paying 30 to 50 percent less for leases in Hong Kong renewed in the latter part of the current financial year.

Brokers Cushman & Wakefield said that as recently as the second quarter of last year, Russell Street was the priciest shopping street around the globe. On average, tenants paid an annual $2,745 a square foot to secure retail space in that location.

The financial center’s retail sales experienced a double-digit drop in November, with visitor arrivals dramatically falling per a report earlier this month. By value, retail sales retreated 23.6 percent in the month from the prior year, but the fall in November was a bit better than the record contraction in October as well as the predictions of economists.

Larger and smaller merchants alike are among those impacted by the continuing protests in the city. And Mainland China arrivals are said to make up the lion’s share of all Hong Kong visitors and fell 58 percent in November.

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