The collapse of retail rents and high vacancy rates in some of Hong Kong’s main shopping districts is forcing some landlords to get creative. Rather than leave their buildings standing idle, some are launching brand new, totally unrelated business ventures to fill the vacant space.
Two joint owners of a five-storey retail complex at 53 Carnarvon Road, Tsim Sha Tsui, for example, plan to open their first cosmetics store on the premises on September 17.
Formerly occupied by a jewellery shop, the space will now become a concept store named Art Piece, offering more than 200 cosmetics brands from the US, Europe, Japan and Korea. Sales will take place both on and offline.
“Where there is risk, there is opportunity,” said Art Piece owner M2R Investment in a written reply to the Post. M2R Investment is run by directors Ng Kwok-chun and Ng Kwok-hing, according to a filing to the company registry.
Their bold move comes after a growing number of international brands such as Victoria’s Secret, the American retailer known for its seductive lingerie, Greek jeweller Folli Follie and the US clothing company J. Crew Group have closed their shops in Hong Kong amid a huge fall in tourist numbers and the city’s worst ever recession.
Retail rents have tumbled as much as 71 per cent from their peak in 2014 in four core locations – Central, Causeway Bay, Tsim Sha Tsui and Mong Kok – in the second quarter of this year, according to JLL. Rents in Tsim Sha Tsui lost 61.4 per cent during that period.
“Landlords have been worst hit by the battered retail market. They may seek to run retail businesses in their own properties if they have the resources. Why not try it?” said Oliver Tong, head of retail at JLL in Hong Kong. “Retail rent will not bottom out until the last quarter this year.”
The heads of M2R Investment are also two of four directors of Elite Faith Investment, which owns the property at 53 Carnarvon Road, according to Land Registry documents.
The last tenant at the address was Chow Sang Sang Jewellery, which paid HK$2.3 million a month, the records showed.
“We see this a good time to create a brand-new online-and-offline platform in the beauty industry. People are getting used to shopping online during the pandemic outbreak. Our online platform gathers over 200 trendy beauty brands from all over the world which allows customers to purchase anytime, anywhere,” said M2R in their reply.
It is the firm’s first venture into retail in Hong Kong.
In the second quarter of this year, the vacancy rate in Tsim Sha Tsui was 20.8 per cent, the highest among the four area core areas listed by JLL.
“It is hard to find any tenant to take up big spaces. We have seen the biggest number of empty shops in tourist belt since 1997,” said Tony Lo, a director in the retail department of Midland IC&I.
He said some landlords might be tempted to come up with creative solutions such as running a retail business themselves because the lack of rental costs could minimise the risk.
Rent for street level shops in Tsim Sha Tsui have taken a sharp fall.
A 1,072 square foot shop on Carnarvon Road was rented out for HK$200,000 a month, or HK$186 per square foot last week, roughly half the HK$390,000 asking price, agents said.
It was 60 per cent lower than a peak of HK$535,000 in 2013.
Milan Station, selling second-hand designer label leather bags, announced it has signed a three-year lease for a 2,060 sq ft shop on the ground floor of The Camphora at 51-52 Haiphong Road, Tsim Sha Tsui for HK$10.2 million in total. That represents a monthly rate of HK$283,000, or HK$137 per sq ft, 64 per cent lower than the HK$800,000 paid by the previous tenant, Sa Sa Cosmetic.
Lawrence Wan, senior director of advisory and transaction services for retail at CBRE Hong Kong, said some landlords have previously formed joint ventures with big brands to open shops in Hong Kong.
“We still have to observe for several months before seeing if it will develop an obvious trend,” he said.
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