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H&M to Relocate Hong Kong Flagship

Inditex’s Zara is expected to move into the location the retailer is vacating because it could not reach an agreement with the building's owner.

The H&M store in the Central shopping district in Hong Kong.

HONG KONG — Hennes & Mauritz is planning to shutter its first store here by the end of next year and move to another location as the city’s commercial rent prices skyrocket. Inditex’s Zara is expected to move into the location H&M is vacating.

H&M decided to move out of its location in the Central shopping district after it could not come to an agreement with the landlord, said a spokeswoman for the retailer. “To us, it’s not a big drama. In Hong Kong, it’s quite common to see shops switching places,” she said.

The company opened its Central flagship shop in 2007 and now has 12 locations in the city as well as 80 in mainland China.

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Zara will be paying 11 million Hong Kong dollars a month, or $1.4 million, for the 30,000 square foot space — about double what H&M was paying, estimated a real estate source. Zara declined to comment.

According to real estate firm Jones Lang LaSalle, the average monthly rent for high street shops in Hong Kong’s Central district is 673 Hong Kong dollars, or about $87, a square foot.

Commercial rental prices have continued to rise in Hong Kong, albeit at a slower pace than last year as retail sales slow down. Hong Kong retail sales growth slowed dramatically in May, pointing to increased caution on the part of mainland Chinese tourists.

Helen Mak, director of retail services at Colliers International, said the firm anticipates commercial rental prices in Hong Kong’s four big shopping districts (Central, Causeway Bay, Mong Kok and Tsim Sha Tsui) will increase about 12 percent for 2012, down from an increase of about 25 percent in 2011.

Despite the slowdown, Mak said that for “iconic high street” locations such as Queen’s Road Central, Russell Street in Causeway Bay or Canton Road in Tsim Sha Tsui, prices continue skyrocketing because “there is no new supply” and more and more international brands have been coming to Hong Kong. Moreover, existing brands are expanding as well.

“Demand is way more than supply, not even counting newcomers,” she said.

H&M is the latest of many retailers in Hong Kong to be displaced by high rents. Shanghai Tang was forced to move from its original Pedder Street location to make room for Abercrombie & Fitch, which reportedly agreed to pay double what Shanghai Tang was paying. Similarly, Forever 21 displaced Hong Kong-based apparel retailer Giordano.