By Isabella Steger
HONG KONG--A drop in mainland Chinese visitors has put a
dampener on store rents in one of Hong Kong's shopping districts,
potentially changing up a retail mix that had catered heavily to
mainland shoppers.
In the prime shopping district of Causeway Bay,
drugstores--where mainland visitors pack rollaway suitcases with
fish-oil capsules, baby formula and beauty face masks--as well as
Rolex-selling stores and branches of Tiffany and Burberry had
proliferated with the growing flow of customers from across the
border in recent years, in the process squeezing out many
mom-and-pop establishments and other traditional businesses.
But a chill in the flow and spending of mainland visitors that
began with a Beijing-led anticorruption campaign has continued as
the Chinese economy slows. Other factors keeping mainlanders away:
last year's anti-Beijing protests that partially shut down some of
Hong Kong's shopping districts, and local resentment against the
crowding from mainlanders; more than 160,000 Chinese tourists
visited a day last year on average.
Mainland Chinese tourist arrivals during the seven-day Lunar New
Year travel period in mid-February was down 4.3% from the year
before, according to Gregory So, Hong Kong secretary for commerce
and economic development, in comments to the city's legislature on
Friday.
Arrivals for all of February were higher than a year earlier,
according to the Hong Kong tourism board, but they fell from
January.
Mr. So said the drop has worsened since. In the first three
weeks of March, mainland Chinese tourist arrivals fell 13% from a
year earlier, he said, adding that the number of mainland tour
groups visiting Hong Kong on an average day had plunged by 45%.
In January, retail sales were down 14.6% from a year ago,
according to government figures, with sales of jewelry and watches
plunging 21.4%.
Rents have also taken a hit. According to preliminary data from
Jones Lang LaSalle, average ground-level shop rents in Causeway Bay
fell around 3% in the first quarter of the year, the first drop
since 2009.
Some Hong Kongers had grumbled that the rapid expansion of
businesses selling to mainland tourists had transformed their
neighborhoods beyond recognition. The number of shops selling
cosmetics and personal-care products rose from 130 in 2000 to 1,440
in 2013, according to Hong Kong government figures.
"Some shops will have to close, especially in the main tourist
shopping districts, because there are fewer mainland Chinese
visitors now," said Lau Oi Kwok, chairman of the Hong Kong General
Chamber of Pharmacy Ltd.
The strength of the U.S. dollar, to which the Hong Kong dollar
is pegged, makes other destinations such as Japan, South Korea or
Europe more enticing for Chinese shoppers, said Nicole Wong, an
analyst at brokerage CLSA.
But she said that the cooling retail boom means opportunities
for other kinds of businesses to regain a foothold: "Landlords may
begin to rent to shops with more creative differentiation or local
character,"
"We could see some stores selling shoes or clothing, not
necessarily catering to mainland Chinese tourists, returning to
Causeway Bay," said Kenneth Yau, senior regional sales director at
Centaline, a property agent.
He said under a recent deal brokered by his firm, a drugstore
tenant signed a lease on a popular Causeway Bay shopping street for
450,000 Hong Kong dollars (US$58,000) a month, down from the asking
price of HK$700,000.
"Drugstores used to pay as much as HK$800,000 a month, and
people were fighting for those leases," he said.
Just a little over a year ago, a McDonald's on Russell Street in
Causeway Bay, which has the highest rental rates in the world by
some measures, made way for yet another beauty-product chain
store.
Now, an employee of one drugstore on the same street said the
store's owner wouldn't extend the lease once it ends. At another
one, Prestige Pharmacy Ltd., an employee who only gave her last
name as Chan said mainland tourists appeared to be spending less
per person than before.
"It's very quiet around here now," she said.
At the other end of the street, a manager at a 36-year-old,
family-run Vietnamese restaurant, which had planned to close up
shop in February, said the restaurant is in discussions with the
landlord about the rent and is remaining open for now.
"We see [falling rents] as a good thing. It's creating an
opportunity for retailers," said Denis Ma, head of Hong Kong
research at Jones Lang LaSalle. "If you look at the retail market
over the last two years, the vacancies have been so low that
there's been no room for retailers to expand or relocate. It really
becomes a landlord's market."
He said luxury stores in another well-known Hong Kong shopping
area, Tsim Sha Tsui's Canton Road, which have drawn large numbers
of mainland shoppers, are likely to still hold up. "But doesn't
mean they won't be affected by a fall in visitor spending," he
said.
Write to Isabella Steger at isabella.steger@wsj.com
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