Hong Kong - Hong Kong Retail Pipped To Overtake New York As Most Expensive In The World
July 27, 2012
With year-on-year increases of 35%, retail rents in Hong Kong could overtake first-place New York as early as 2014.
Prime retail rents in Hong Kong rose by an astonishing 35% year-on-year in March, outstripping rent rises in even New York, currently the most expensive shopping district in the world.
Rents at New York's Fifth Avenue rose by 23% over the same period, meaning that Hong Kong is gaining on New York for the title of most expensive retail district in the world. Retail rents in prime shopping districts in space-scarce Hong Kong are also rising faster than in London or Paris.
According to Colliers International, average annual rent along Hong Kong's Queen's Road Central soared to $1,831 per sq ft after a 35% increase in March. Over at New York's Fifth Avenue, average annual rent was $2,633 per sq ft after rising 23%. Colliers International estimates that should Hong Kong retail rents continue their stratospheric rise, they will overtake New York as early as 2014.
The massive surge has pushed chains such as H&M out of central shopping districts to seek cheaper locations in the suburbs. The Swedish fashion chain first entered Asia with a flagship store spanning 30,000 sq ft in Central, the heart of Hong Kong shopping. However, now that its lease is up for renewal, its landlord is asking for double the rent - from HKD 5.5 million per month to HKD 11 million.
The world's second-largest clothing retailer has chosen to give up the space in favour of new store space in a cheaper district. H&M spokesperson Hacan Andersson said that as the retailer could not reach an agreement with the landlord, it was closing its Central store next year. "There is no drama in this. We open and close stores regularly to always have the best business location," said Andersson.
H&M's space will be taken over by competitor Zara, which has agreed to the exorbitant rent.
"Hong Kong rents are going through the roof," said Sally MacDonald, chief executive of Australian handbag and accessories maker Oroton, which has been unsuccessfully seeking to open a store in Hong Kong owing to overpriced rentals.
"It's a concern because that's a market that booms and busts and the rents are probably unsustainable," she said.
Retailers have adopted a number of tactics in order to cope with the expensive rental market, including the use of pop-ups shops - temporary shops that are designed to capture seasonal surges in shopping. Other retailers are forgoing Hong Kong as a testbed to the wider China market and are directly starting up in Shanghai. Otherwise, they are seeking to expand in Asia through other markets, such as Malaysia or Singapore.
"In the past, even two years ago, you needed the store in Hong Kong in order to be successful in Shanghai," said Oroton's MacDonald. "I think already, you can have the store in Shanghai without the store in Hong Kong and be respected."
"It is no longer essential to use Hong Kong as a stepping stone," added Simeon Piasecki, former managing director of Marks & Spencer in Asia. "It's not an easy place to get into."
Despite changing attitudes, Hong Kong's race towards the top is unlikely to falter.
Wee Liat Lee, the head of property research at BNP Paribas Securities in Hong Kong, said that retail rents for prime shopping mall space would rise 13% in Hong Kong this year and another 10% next year.
"The core area rental will continue to grow and become the most expensive in the world," Lee said, but added that the growth is likely to taper off in the next three to five years as even more retailers move to the suburbs.
Tags: Investment properties, Commercial real estate