Much like the current season, retail sentiment in Hong Kong is getting warmer but traders are bracing for chilly weather ahead.
Yes, mainlanders are coming back, but more people are shifting to online shopping. As a result, rents for commercial space in core shopping districts are declining despite record residential and office prices.
Take the case of Esprit, which has renewed a six-month lease after six years at the MPM Plaza, opposite Langham Place, in Mong Kok.
Esprit will be paying HK$1 million a month, a 60 percent discount to its previous rental of HK$2.5 million since it set up a 126,000 square foot flagship store in the area, according to the Hong Kong Economic Journal.
In other words, the company founded by Michael Ying, who recently gifted his stake to his two daughters, saved HK$9 million for renting the same place on a six-month lease.
The landlord, Lai Wing To, originally wanted to lease the place for HK$2 million a month, but was unable to find the right tenant even after he lowered the rent to HK$1.5 million.
Lai confirmed to the newspaper that he has offered a special rate for Esprit under a short-term contract, but he hoped to find a longer-term tenant at his original price.
In the good old days when mainlanders occupied Mong Kok with their suitcases, Esprit paid an annual rent of HK$30 million, or three times the prevailing rate of HK$10 million, for a shop in 2012.
But in the last three years, fewer mainland tourists were coming to Hong Kong because they did not feel welcome to local residents who felt their daily lives and well-being were being affected. During its heyday, the crowded length of Haiphong Road in Tsim Sha Tsui had more jewelry shops for mainlanders than fishball snack shops for locals.
A few incidents in which mainland tourists were attacked in the New Territories in early 2015 further discouraged visits by mainlanders, many of whom started going to other Asian countries such as Korea or Japan for holidays.
Many retailers such as Esprit, which has a relatively small presence – and loss-making business – in Hong Kong, were doubly hit because aside from the declining business from tourists, they had to cope with sky-high rents to keep their shops.
Industry watchers are now shifting their attention to Esprit’s other flagship store on Ashley Road in Tsim Sha Tsui. The retailer pays a monthly rent of HK$4.5 million for the four-storey shop. The contract will expire in February, and the landlord is looking for tenant for HK$3 million.
Can Esprit get another discounted short-term tenancy?
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