Tenants in prime retail spaces are on an expansion path, and Mong Kok, Tsim Sha Tsui and Causeway Bay are the most appealing to them due to leasing costs that are still recovering from that Covid-19 retail chokehold.
One instance of this saw a 1,000-square-foot, ground-floor shop at 501 Lockhart Road in Causeway Bay leased out for HK$150,000 a month to Wu Zhi Jian Beef Noodles, with the rent being 40 percent lower than prepandemic levels four years ago.
For the shop's owner, that's a pretty seamless transition from the last tenant, a Japanese restaurant that had operated for four years since February 2020 at a monthly rental of HK$250,000, agreed upon prepandemic.
Preceding the Japanese restaurant was a fashion store that sold branded handbags that paid an even handsomer rent of HK$380,000.
Of course, that was at the height of the rental market in 2015, when people up north were coming down in droves for luxury products and helping drive rents to historical highs.
So this latest rent deal shows a precipitous 60 percent drop from that lofty peak.
Dennis Cheng Tak-ming, senior sales director at Ricacorp Properties, said that with rents seeing significant drops, the retail scene in core areas has been transformed into one dominated by the catering sector to meet demand for daily needs.
That has resulted in the food sector becoming prominent along Lockhart Road, with its collection of restaurants, bakeries, fish maw shops and dried seafood stores flourishing sometimes cheek to jowl with the cosmetic stores, pharmacies and currency exchange shops whose presence predated them.
That's the happy result of rent levels, which have fallen to HK$200,000 or even lower, presenting much less of a risk for more businesseses and alleviating that eyesore that the Covid-enforced vacancies infected upon the retail scene here two years ago, Cheng added.
Another shop space, a 613-square-foot lot on the ground floor of Alpha House on Nathan Road in Tsim Sha Tsui was leased after being vacant for just one month for about HK$250,000 a month, a 17 percent decline from last year.
The new tenant, reportedly from the retail sector, snapped up the lot due to its prime location and moderate size.
The previous tenant was a pharmacy, whose operators had been paying about HK$300,000 per month since last March.
Otherwise, pharmacies were the first and most active in chasing shop leases once cross-border travel resumed at full flow.
However, their success depends heavily on operational strategies due to fierce competition, as selling only popular items or patent medicine may not be profitable, sometimes leading the businesses to sell their wares at a loss to attract customers, says Edwin Lee Kan-hing, founder of Bridgeway Prime Shop Fund Management.
In Mong Kok, a 2,300-sq-ft property at 67-69 Argyle Street that is owned by veteran investor Lai Wing-to was leased to the US-listed digitized brokerage Futu Securities for about HK$1 million per month.
That is a rebound for Lai as the rent over the past two years was just over HK$300,000, while before that the shop was leased to the century-old jeweler Lao Feng Xiang, when the rent peaked at HK$2.2 million.
That translates into a rental decline from those heydays of HK$1.2 million, or 54 percent.
Lai said that due to his properties seeing significantly increased leasing activity from the entry of mainland financial institutions and restaurants, he abandoned a redevelopment plan for an old building on Argyle Street and welcomed new tenants instead.
This is Futu Securities' second store in Hong Kong, following its debut last May on Nathan Road in Tsim Sha Tsui, with that first branch taking up a shop space of about 4,437 sq ft for HK$850,000 a month.
The brokerage also secured the entire 34th floor of United Centre in Admiralty for use as an office for about HK$800,000 per month early this year, replacing its old office on the 13th floor of the same building.
The new office space covers about 20,000 square feet, increasing its total office footprint in Hong Kong by 80 percent.
