Shop rents in Hong Kong are falling, and in the case of Switzerland’s Swatch, the new retail reality means paying less than half of the former price for store space in the heart of the city’s Central district.
Swatch is now paying HK$1.4 million ($179,300) per month (HK$350 per square foot) to rent two shops covering some 4,000 square feet (372 square metres) in the Central Building on Hong Kong’s Pedder Street, according to an account this week in the Hong Kong Economic Times.
The new lease on the subterranean shopping space marks a rent reduction of more than 53 percent from the HK$3 million (around $384,200) per month that fashion brand Hugo Boss was paying for the same stores near Hong Kong’s Central metro station last year.
New Retail Reality Sets In
The price cut for the prime shopping space comes as Hong Kong’s retailers feel the pinch from slowing arrivals of visitors from mainland China, and pressure from ecommerce competitors.
At the peak of the city’s retail boom in 2013 and 2014, international brands gobbled up multi-storey spaces for their flagship stores. Many of the same firms have abandoned or downsized those flagship locations amid sliding retail sales over the past three years, driven largely by a decline in spending by mainland Chinese.
The Central Building space became available after German fashion house Hugo Boss downsized its flagship store in Hong Kong’s Central Building. The luxury retailer had been shelling out HK$6 million ($768,400) per month for 14,000 square feet in the building through last year.
Abercrombie & Fitch announced last November it would shutter its four-storey, 25,600 square foot (2,378 square metre) flagship store on Pedder Street, which it had opened in 2011. The US apparel chain was paying HK$7 million per month ($902,662) in rent, double that of previous occupier Shanghai Tang. As the lease expires in 2019, the move would incur an early termination fee of $16 million.
Luxury Brands Backing Out of Central Leases
The pain for existing high end tenants is translating into new homes for mid-market brands, including Swatch as retail rents plunge by up to 60 percent in the prime downtown property. Hong Kong’s Puyi Optical is now spending HK$600,000 per month to lease two ground floor units totalling 1,285 square feet in the same building, a 60 percent drop from the HK$1.5 million paid by former tenant Vertu, a British maker of luxury mobile phones.
In September 2015, sports brand Adidas leased a 13,000 square foot shop at 36 Queen’s Road, Central for 22.5 percent less than former tenant Coach paid.
Hugo Boss Trimming Its Biggest Asian Flagship
Hugo Boss opened its flagship store in Central Building, the brand’s largest in Asia Pacific, in April 2014 in tandem with another store launch in Tsim Sha Tsui. But the company’s enthusiasm for Hong Kong was short-lived, as slumping retail sales in the city prompted an effort by the Metzingen, Germany-based firm to find another tenant that could either sublet or take over the lease for part of the space.
The move to trim rental costs in Hong Kong came amid a broader global strategy that Hugo Boss announced last year to renegotiate rental agreements and cut administrative overhead, and even to close some stores, in the face of lower-than-expected sales and profits.