Mainland Bank Leases Storefront in Central’s Wheelock House at 55% Discount

China’s Bank of Communications appears to be taking advantage of a sustained slide in Hong Kong retail rents to expand its footprint in the city’s Central district at a rent less than half of what an earlier tenant paid for the same shopfront location in the business hub.

The top ten mainland bank has leased a 3,000 square foot (278 square metre) ground floor unit in Wheelock House on Pedder Street for a monthly rent of HK$1.5 million ($190,000), according to an account in the Hong Kong Economic Times. The transaction was made possible after Italian fashion brand Canali moved out of the location between Des Voeux Road and Queen’s Road Central earlier this year.

The bank’s new lease for the space, which is adjacent to a unit that the bank has occupied since 1985, works out to HK$500 per square foot per month, just 45 percent of the price paid by the Italian fashion brand when it signed the previous lease for the shop in 2012.

Retail Recovery Leaves Out Luxury Brands

The cut-rate lease for the high-end location comes despite signs of a recovery in Hong Kong’s mainstream retail market elsewhere in the city, as the market for luxury goods and flagship spaces has yet to regain levels reached from 2014 to 2016.

The bank, which celebrated its 110th anniversary this year is said to be using its new space to supplement its existing Hong Kong headquarters location in Wheelock House, which it opened just one year after the building was completed by Wheelock and Company in 1984.

Once a centre for retail brands competing for prime spots to show off their wares to wealthy visitors from the mainland, since last year, rents for retail property in Hong Kong’s core business area have decline sharply.

According to the most recent report on Hong Kong’s retail sector by Savills, overall retail sales in the city have been recovering in the city, thanks in part to an increase in the number of tourists from the mainland during the first nine months of this year. However, the brokerage’s head of Hong Kong research, Simon Smith sounded a cautionary note regarding a return to previous spending levels.

“The highly anticipated rally in the retail market is unlikely to fully materialize as landlords and retailers recalibrate expectations for the fourth quarter,” Smith noted in the report published this month. In particular, the agency found that retail spending per capita has slid compared to earlier years, as tourists have switched their spending from luxury brands to more affordable items.

High-End Hong Kong Locations Facing Headwinds

As a result of the shift in spending, high-end retail hubs in Hong Kong, including Causeway Bay and Central, are facing downward pressure on rentals, despite the overall rebound in retail sales.

In July a 7,000 square foot shop in Causeway Bay formerly occupied by Esprit was taken by athletic apparel brand Nike for HK$1.5 million per month. That lease marked a 25 percent discount off the HK$2 million per month that the fast-fashion brand had been paying for the street-corner location at 77 Leighton Street.

Three subway stations away in Central, retail rents have been declining still more rapidly.

In August Oriental Watch Holdings took over a 6,500 square foot ground floor space in the Loke Yew Building on Queen’s Road in Central for HK$2 million per month — a markdown of 40 percent off the rent previously paid by fashion brand Massimo Dutti to lease the same space, just three minutes walk from Wheelock House. The watch seller is paying the equivalent of HK$307 per square foot per month for its new home.

Earlier this month, local clothing brand G2000 leased a space five minutes walk up Des Voeux Road from Wheelock House at 60 percent off the previous rental. The Hong Kong-based apparel maker will be paying HK$350,000 for its 915 square foot shop in New Henry House on Ice House Street, or about HK$382.5 per square foot per month.