Hong Kong will top the world in retail rents

Hong Kong’s Causeway Bay is now the second most expensive shopping district in the world, behind New York’s Fifth Avenue and ahead of Tokyo’s Ginza, London’s Bond Street and the Champ Élysées in Paris. Of course Mainland Chinese shoppers are the driving force behind these high rents and there are often long lines of mainland tourists outside the Louis Vuitton, Burberry and Dolce & Gabanna stores, where they are (allegedly) preferred over local shoppers, much to the chagrin of many Hong Kong inhabitants.

Mainland Chinese customers queuing up is not something that is going to slow down anytime soon. Almost any brand in the world has China as its number 1 priority and for these brands it is essential to be visible in Hong Kong because of the awareness and traffic of mainlanders. Profitability is not the main goal as it is more about advertising to China than anything else.

Mainland Chinese travelers take shopping on their trips abroad very seriously and their shopping is often a stressful and difficult task, as they have little time and long shopping lists. They prepare their shopping list months in advance, consult friends, search websites and social media on what to buy and when they depart, they bring empty suitcases and a pocket full of cash with them.

They are savvy travelers but insecure shoppers. They often feel uneasy in shops abroad and are sometimes treated unfairly. Many of them are not fluent in English (let alone French) and in the rest of the world, most sales persons do not speak Mandarin – although an increasing number of shops in New York, London and Paris employ Chinese speaking sales staff.

Hong Kong is at a clear advantage; it is familiar, Chinese and nearby. Price is the most important reason for buying luxury goods, from a quality/value perspective, tax refunds, and currency differences. Mainland Chinese shoppers are concerned about authenticity of products and they presume that Hong Kong is free of counterfeits.

Causeway Bay’s retail rents are still 15-20% behind Fifth Avenue, but while rent prices in the latter were merely stable last year, Hong Kong’s rents will keep rising, as the demand will keep growing and given its size, Hong Kong will always face a supply constraint.

Will the demand keep rising as well? It surely will according to research from TNS; the average Mainland Chinese shopper spends RMB15,000 on each trip to Hong Kong, which is quite a lot, but still much less than when they shop in Europe, where they spend 50% more. More importantly, the percentage of Mainland Chinese traveling abroad is still very low. China made a total of 50 million trips last year, which puts it at number 5 in the world. However, this is just 4 trips for every hundred inhabitants; compare that to Germany (89 trips for every hundred), the United Kingdom (122) or the United States (21) where each country has approximately 70 million foreign departures per year.

With the growing wealth in China, it is a sure bet that the Mainland Chinese will travel and spend more and their first and foremost destination will remain Hong Kong. So whether the locals like it or not, expect Hong Kong to have the most expensive shopping street in the world in the years to come.