Retail leasing interests in Causeway Bay and Tsimshatsui shift

HONG KONG, September 21, 2023 – Since the reopening of borders, there has been a surge in demand for retail shops sized spanning between 1,000 and 2,000 sq ft. This surge has prompted a reshuffling of first-tier shopping streets, with Kai Chiu Road in Causeway Bay and Haiphong Road in Tsimshatsui emerging as the most favoured shopping streets for retailers. These two shopping streets have witnessed the highest level of leasing activity so far this year, accompanied by a robust rebound in retail rents for40% from the low levels during the pandemic. Notably, Kai Chiu Road has recently attracted a local cosmetics and pharmacy brand to lease and open its first store on Hong Kong Island.

JLL recently assisted the local cosmetics and pharmacy brand to lease the G/F shop of No. 4 Kai Chiu Road to open its upcoming fourth store in Hong Kong, slated to open in October. The monthly rent of this 1,500 sq ft shop exceeds HKD 500,000, 40% higher than the rent of a fashion store during the pandemic. However, the new rent remains more than 75% lower than the previous lease when Chow Tai Fook rented the shop for about HKD 2.3 million per month at the peak of the market.

Timothy Cheng, Director of Retail at JLL, said: "The brand has also leased three shops in Tsimshatsui so far this year, including shops on Canton Road, Haiphong Road and Carnarvon Road. The decision to open a store on Kai Chiu Road was motivated by its advantageous proximity to the Lee Gardens hub. The shop’s location, nestled between two major shopping malls and a department store, presents an ideal commercial opportunity. Also, the hub is a vibrant area as Hysan Development actively holds activities in the neighbourhood to attract footfalls. On top of this brand, the property also attracted three other retailers, which was rare over the last three years. In contrast, a similar situation has not been observed on Russell Street recently."

Actually, local medium-scale tenants, showing a preference for medium-sized shops with high volumes of pedestrian traffic, are currently the major sources of demand in the retail leasing market. The street-level shops sized between 1,000 and 2,000 sq ft are in higher demand from these tenants. Kai Chiu Road and Haiphong Road have emerged as hotspots due to their greater supply of such shops, leading to a significant rebound in retail rents in new lettings. Moreover, there has been rental growth observed in renewal leases. These have led to a reduction in the rental gap between Kai Chiu Road and Russell Street by about 40 percentage points. Prior to the pandemic, retail rents in Russell Street were 110% to 120% higher than those in Kai Chiu Road. Currently, the retail rental differential stands at 70% to 80% in favour of Russell Street.

Moreover, benefiting from the border re-opening, in Tsimshatsui, leasing activities in Haiphong Road increased significantly in the second quarter of this year. Rents in Haiphong Road are only 40% lower than the pre-pandemic levels, while rents in Canton Road remained 80% lower than the pre-pandemic levels.

In the short term, Cheng believes the retailers would continue to focus on the medium-sized shops in high-traffic shopping districts as the retail market has not yet fully recovered.