Mass-Market Retailers Head to Hong Kong
Mass-market retailers are flocking to Hong Kong, one of the world’s top luxury shopping cities, driving up rents for retail space in their effort to market themselves to mainland Chinese consumers. Abercrombie & Fitch Co., Gap Inc., Apple Inc., Forever 21 Inc. and American Eagle Outfitters Inc. are the latest retailers to open outlets or plan openings in Hong Kong. In a sign of the times, Abercrombie is moving into a prime spot in the historic Pedder Building in Hong Kong’s Central district, replacing the long-time tenant, Shanghai Tang, a Chinese-styled luxury retailer now owned by Cie. Financiere Richemont SA of Switzerland.
Abercrombie will pay seven million Hong Kong dollars (US$900,000) per month for a 25,000-square-foot store, more than twice what was paid by Shanghai Tang, according to a report by real-estate firm Cushman & Wakefield. Neither Savills, the real-estate firm that worked on the deal, nor Abercrombie would confirm the figures. In recent years, luxury stores such as Prada, Louis Vuitton and Gucci have been among the big sellers in Hong Kong. But commercial-real-estate insiders say an influx of foreign retailers geared to the mass market is pushing up store rents in the city’s most desirable locations. The average annual rent for retail spaces in the Causeway Bay shopping district has risen 34% in the past two years to US$1,849 per square foot, says Michelle Woo, a senior director at Cushman & Wakefield.
While retail sales in North America and Europe have been hit hard by the global economic slowdown, sales in Hong Kong have been growing fast. Retail sales in the city rose 20% in the first quarter of 2011, compared with a year earlier, according to the city’s Census and Statistics Department. A significant factor is the uptick in the number of mainland Chinese tourists visiting Hong Kong. In the first four months of this year, 6.5 million Chinese tourists came to the city, up 17.5% from last year. Many are drawn by Hong Kong’s prices, which can be as much as 40% lower than they are over the border because Hong Kong doesn’t tax retail sales. American brands are following in the footsteps of European retailers, according to Nick Bradstreet, head of leasing at Savills.