Hong Kong Central Shop Rents May Surge as Gap, Abercrombie Add More Stores

Abercrombie & Fitch Co. (ANF) and Gap Inc. (GPS)’s expansion in Hong Kong may help push shop rents in the Central business district up almost 50 percent over the next three years, according Jones Lang LaSalle Inc.

The U.S.-based retailers are set to open flagship stores on or near Queen’s Road Central by the first quarter of next year. Rolex Group, the Swiss watchmaker, has agreed to renew the lease for a nearby shop at a monthly rate of HK$2.4 million ($308,000), or HK$2,400 a square foot, the second-highest in the city, the Hong Kong Economic Times reported Aug. 18, without saying where it got the information.

Hong Kong’s street level shop rents rose 7.4 percent to a record in the second quarter from the previous three months after retail sales climbed and as more tourists from other parts of China visited the city, according to Colliers International. Chinese tourists to 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.

“The key to retail is foot traffic and exposure,” said Tom Gaffney, Hong Kong-based national director of retail at Jones Lang, the world’s second-biggest commercial brokerage, who forecasts rents in the area to rise as much as 48 percent over the next three years. In Central, “you’re seeing these international brands all expanding into one core area and that’s going to cause a huge amount of traffic to flood to one location.”

Chinese tourists account for about 30 percent of retail spending in Central, said Gaffney.

Sales Jump

Hong Kong’s retail sales jumped 28.8 percent in June to HK$31.3 billion, the biggest gain in more than a year, on tourist arrivals and low unemployment, according to government statistics.

HongKong Land Holdings Ltd. (HKL), the biggest landlord in Central, fell 2 percent in Singapore as of 10:42 a.m. local time. Cheung Kong (Holdings) Ltd., which owns the Aon China Building where the Rolex shop is, rose 1.6 percent in Hong Kong.

The growth in Chinese tourist spending, which took off in 2004 when the country’s government began easing travel restrictions by its citizens to Hong Kong, has in the past few years lured global retailers to set up flagship stores in the former British colony returned to Chinese rule in 1997.

Hennes & Mauritz AB (HMB), the world’s second-largest clothing retailer, in 2007 opened a four-story shop, its first in the city, on the western end of Queen’s Road Central, about a two minute walk from the planned Gap store. That was followed by Coach Inc., the biggest U.S. maker of luxury handbags, which opened a store on the street a year later.

Gradual Evolution

Central, in the northwest of Hong Kong Island, is home to the regional headquarters of HSBC Holdings Plc (5), Europe’s biggest bank and also the city’s stock exchange and securities regulator.

Sun Hung Kai Properties Ltd. (16) and Henderson Land Development Co. in 2003 opened an 800,000-square-foot shopping mall in the International Finance Centre complex, the biggest shopping mall in Central.

“In the past decade, Central has gradually evolved from a pure business district,” said Helen Mak, director of retail services at property brokerage Colliers International. “There’s now a heavier crowd even during non-business hours and a lot of that is the result of the addition of a big shopping mall and flagship stores nearby.”

Gap, Abercrombie

San Francisco-based Gap, the largest U.S. apparel chain, will in November open a 15,000-square-foot store at the ground floor of the LHT Tower, according to Jones Lang. Across the street, Abercrombie of New Albany, Ohio, is scheduled to open a 32,000-square-foot shop in a space in the Pedder Building occupied by Shanghai Tang, a local high-end fashion retailer, Colliers said.

Monthly shop rents in that area, adjacent to the Lan Kwai Fong bar and restaurant district, have jumped almost 33 percent since the end of 2009 to HK$2,000 per square foot, said Mak.

That figure is still behind Causeway Bay’s Russell Street, which has the world’s third-most expensive retail space after Manhattan’s Fifth Avenue and Avenue des Champs-Elysees in Paris, according to Colliers.

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.