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Hong Kong Tops New York as Most Expensive Retail Location

Hong Kong ended New York’s 11-year reign as the home of the world’s most expensive district for retailers as luxury-brand companies competed for space to sell goods to mainland Chinese tourists.

Average annual rents at Causeway Bay on Hong Kong Island rose 35 percent to $2,630 a square foot at the end of June from a year ago, Cushman & Wakefield Inc. estimates. Hong Kong overtook Fifth Avenue in Manhattan, while Paris’s Avenue des Champs-Elysees rose to third in a global ranking of 326 prime shopping locations published by the real estate broker today.

Causeway Bay landlords Wharf (Holdings) Ltd., Hysan Development Co. and Emperor International Holdings Ltd. (163) reported rising sales for their tenants as visitors from mainland China took advantage of tax-free shopping in Hong Kong. Tourist spending rose 18 percent to HK$138 billion ($17.8 billion) in the first nine months, the territory’s tourism board estimates, bolstered by a 31 percent increase in visitors from the mainland.

“New York and Hong Kong are slugging it out at the top,” Mark Burlton, a London-based partner at Cushman’s cross-border retail team, said in an interview. “The Chinese customer is helping float a lot of ships across the world,” prompting luxury stores in the main global shopping destinations to hire Chinese-speaking workers, he said.

Luxury Brands

Wharf reported a 13 percent annual gain in first-half revenue generated at its Times Square mall in Hong Kong, where tenants include branches of Salvatore Ferragamo Italia SpA, PPR SA’s Gucci, Chanel SA, Mikimoto and Christian Dior SA’s Marc Jacobs.

International fashion brands and luxury retailers have used flagship stores in Hong Kong to break into the Chinese market and attract customers from the territory’s wealthy residents.

The city’s Central and Tsim Sha Tsui districts were the next two most expensive retail rental locations in the Asia- Pacific region as a shortage of space and land for new outlets squeezed rents higher.

Sa Sa International Holdings Ltd. (178), a Hong Kong-based cosmetics chain, in September leased a 1,000 square-foot (93 square-meter) street-level store on Lockhart Road for HK$850,000 a month, according to Midland Holdings Ltd., which handled the deal. That was more than double the amount paid by the previous tenant, the broker said.

Burberry Store

Burberry Group Plc (BRBY) opened a shop on Hong Kong’s Russell Street, according to a Nov. 7 statement. The U.K. luxury-goods maker agreed to pay HK$7.7 million a month for the property, Ming Pao newspaper reported. That compares with HK$3.3 million paid by Nokia, the previous tenant, the Hong Kong-based, Chinese language-newspaper said, citing people it didn’t identify. No one at Burberry was available to comment.

“There’s a huge demand-supply imbalance in the area,” said Helen Mak, Hong Kong-based head of retail services at broker Colliers International.

The pace of Hong Kong’s rental gains displaced New York’s Fifth Avenue from its top position in the global ranking, even as the average prime rent in the U.S. city rose 11 percent to $2,500 a square foot, the Cushman & Wakefield study showed.

Burlton said there are leasing deals currently under discussion that may propel Fifth Avenue back to No. 1 in the ranking.

Paris rose two places following a 30 percent increase in prime rents to $1,129 a foot as international retailers including Levi Strauss, Hugo Boss and Kusmi Tea opened or refurbished stores. Tiffany & Co. plans to open a 974 square- meter shop in the city in 2014.

The French capital’s higher ranking came at the expense of Tokyo’s Ginza district and Pitt Street in Sydney’s central business district, Cushman said. In both cases, rents stagnated.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net; Kelvin Wong in Hong Kong at kwong40@bloomberg.net.

To contact the editors responsible for this story: Andrew Blackman at ablackman@bloomberg.net; Andreea Papuc at apapuc1@bloomberg.net.

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