Hong Kong Causeway Bay Shop Rents Set to Rise on Hysan Mall

Hong Kong’s Causeway Bay, home to the world’s third-most expensive shopping strip, is set for its biggest facelift in almost two decades with a new mall that may drive up rents in the area.

Hysan Development Co., the area’s biggest commercial landlord, next year will complete a complex the size of 12 American football fields in the district’s biggest addition since 1994, when Wharf Holdings Ltd. (4)’s Times Square put the area on the luxury retail map. About 45 percent of Hysan Place’s retail space is already filled with tenants that may include Apple Inc. (AAPL)

“2011 will probably be the year of Causeway Bay,” Nick Bradstreet, Hong Kong-based head of leasing at Savills Plc, said in an interview. “Hysan Place will bring huge interest to the area. Rentals on a lot of the neighboring streets are going to come up because of that.”

Increased spending by cashed-up Chinese tourists and the addition of new shopping space will drive up prime street shop rents in some parts of Causeway Bay, a former fishing village, by as much as 50 percent this year, according to Jones Lang LaSalle Inc. (JLL), the world’s second-biggest commercial brokerage. Causeway Bay’s Russell Street has the world’s third-most expensive retail space after Manhattan’s Fifth Avenue and Avenue des Champs-Elysees in Paris, according to Colliers International.

Hysan, which owns about 3 million square feet of office and retail space in the area east of the Central district, is scheduled to complete construction of the 710,000-square-foot Hysan Place in the second quarter of 2012.

‘Robust’ Sales

Average rents at prime street retail shops in Causeway Bay rose to HK$910 ($117) per square foot in the first quarter from HK$833 in the fourth quarter of 2010, according to Savills.

“Rental in this area probably won’t go back to what you’d consider reasonable in a conventional sense for a while,” Hysan Chief Executive Officer Gerry Yim said in an interview. “Retail rents reflect shops’ turnover and from what we see, businesses in Causeway Bay are going to stay robust for a long time.”

Hysan is also completing the renovation of 26,000 square feet of ground floor retail space at the 34-year-old nearby Leighton Centre.

“The benefit of these renovations they’re carrying out right now will begin to show down the years,” said Eva Lee, a Hong Kong-based property analyst at Macquarie Securities Ltd., who recommends investors to buy the company’s shares. “With the tight supply of both office and retail space, the opening of Hysan Place is exceptional timing.”

Landlord Shares

Hong Kong’s biggest commercial landlords have outperformed residential developers in the past year. Hysan’s shares have risen 72 percent since the beginning of 2010 while Wharf has added 24 percent. By contrast, Sun Hung Kai Properties Ltd. (16) and Cheung Kong (Holdings) Ltd., the city’s two-biggest residential developers, have risen 2.2 percent and 15 percent respectively.

Hysan shares rose 1.2 percent to HK$37.95 at the 4 p.m. market close in Hong Kong, compared to a 0.8 percent advance in the Hang Seng Property Index, which tracks the performance of the city’s seven biggest developers and doesn’t include Hysan.

Fishballs to Gucci

Causeway Bay, a fishing village in the city’s early colonial days, is now a bustling hub where fishball and juice sellers, mobile phone shops, luxury watch retailers and local- designer brands are squeezed next to shopping malls that house European luxury brands such as Gucci and Louis Vuitton, and Japanese clothing and accessory chains including Muji and Uniqlo. Times Square overlooks a meat, vegetable and fruit market.

“Hysan Place will attract a slightly different crowd to the area” compared to Times Square and other malls owned by Hysan, said Helen Mak, Hong Kong-based head of retail at Colliers. “It’s catering more to the younger generation, whereas many of the outlets selling luxury goods in the district are aimed at mainland Chinese tourists.”

Apple is in negotiations with Hysan to open a store in Hysan Place, according to a person with knowledge of the matter. Apple will open a store in Hong Kong this year, Carolyn Wu, a spokeswoman in Beijing for the Cupertino, California-based company, said. She declined to specify the location.

Chinese tourists visiting Hong Kong jumped 26 percent to 22.7 million in 2010 from a year earlier, according to the city’s tourism board. The figure reached a daily record of 122,893 on April 30 this year, according to the organization.

Russell Street

Prime street shop rents on Russell Street have increased 34 percent in the first quarter compared with a year earlier, according to Savills, the U.K.’s largest publicly traded property broker. Retail sales at the tenants in Times Square rose 25 percent in 2010 on increased arrivals and spending by Chinese visitors, according to figures from Wharf.

I.T Ltd., a Hong Kong clothier that retails fashion brands including D&G and Fred Perry, in the first quarter opened a four-story, 30,000-square-foot new store at One Hysan Avenue, a building about a minute walk from Hysan’s headquarters.

Retail rents in Tsim Sha Tsui, a shopping and commercial district on Hong Kong’s Kowloon Peninsula, last year climbed as much as 25 percent after the opening of three new shopping malls including New World Development Co.’s K-11 and Chinese Estates Holdings Ltd. (127)’s The One.

Hysan Place may have the same impact on shop rents in Causeway Bay, starting with its nearby streets, according to Savills, Colliers and Jones Lang.

Local Rents

Expectations of an increase in shopper traffic because of Hysan Place, which will have 17 floors of shopping space and 15 floors of office space, is pushing rents up along neighboring streets such as Kai Chiu Road and Pak Sha Road, according to Jeannette Chan, head of retail for Hong Kong and Southern China at Jones Lang. Rents in those streets may rise to HK$800 to HK$1,500 per square foot a month this year, from HK$500 to HK$1,000 currently, Chan said.

Causeway Bay is about a seven-minute subway ride from Central. Hysan in 2010 derived 43 percent of its gross profit from office rental and 41 percent from its 900,000 square feet of retail space, according to its annual report.

“Shops without a very high turnover will be gone in the long run,” said Hysan’s Yim from the company’s office on the 49th floor of the Lee Gardens Building, which overlooks the area. “Recently a fruit-seller closed down and chances are that these kinds of retailers won’t be back. The whole area is going through another transformation.”

To contact the reporter for this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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Photographer: Dale de la Rey/Bloomberg

A tram passes by a Hysan Development Co. construction site in the Causeway Bay area in Hong Kong, China.

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Photographer: Dale de la Rey/Bloomberg

A tram passes by a Hysan Development Co. construction site in the Causeway Bay area in Hong Kong, China. Close

A tram passes by a Hysan Development Co. construction site in the Causeway Bay area in Hong Kong, China.

Photographer: Dale de la Rey/Bloomberg

Pedestrians walk through the Causeway Bay area in Hong Kong, China. Close

Pedestrians walk through the Causeway Bay area in Hong Kong, China.

Photographer: Dale de la Rey/Bloomberg

Pedestrians pass by a Hysan Development Co. construction site in the Causeway Bay area in Hong Kong, China. Close

Pedestrians pass by a Hysan Development Co. construction site in the Causeway Bay area in Hong Kong, China.

Photographer: Dale de la Rey/Bloomberg

Pedestrians walk past a Chanel SA retail store in the Causeway Bay area in Hong Kong, China. Close

Pedestrians walk past a Chanel SA retail store in the Causeway Bay area in Hong Kong, China.

Photographer: Dale de la Rey/Bloomberg

Cranes operate on top of a Hysan Development Co. construction site in the Causeway Bay area in Hong Kong, China. Close

Cranes operate on top of a Hysan Development Co. construction site in the Causeway Bay area in Hong Kong, China.

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