Soaring Rents in Hong Kong Push Out Mom and Pop Stores

HONG KONG — Nam Kee Noodles is a typical Hong Kong eatery: functional, popular and busy. A dozen plastic-topped tables offer room for about 40 patrons, who line up outside at lunchtime to consume spicy noodle soup, dumplings and iced soy milk amid the clatter of plastic bowls and chopsticks.

In April, however, the little restaurant in the heart of Causeway Bay, one of Hong Kong’s busiest shopping districts, nearly had to shut down after the landlord tripled what was an already expensive rent.

“We were paying around 200,000 dollars a month,” said Au Kei-Hong, the shop’s manager, referring to an amount in Hong Kong dollars equivalent to about $25,800. “But the landlord then increased it to 600,000. It was too expensive. We cannot afford that.”

After frantic negotiations, Mr. Au agreed to a less dramatic — though still steep — increase that has allowed him to stay put for another year.

Others have not been so lucky. Soaring rents have forced at least three other small businesses on the same Causeway Bay street to move or close down in the past few months, and similar tales of woe are commonplace among small businesses in other prime areas in the bustling and crowded city.

Rapid growth and sweeping economic changes have pushed up retail rents in many of Asia’s growing metropolises in recent years. But nowhere have they reached the stratospheric heights that they have in Hong Kong, a banking, logistics and trading hub that is seen by many companies as a testing ground and launching pad for the vastly larger mainland Chinese market.

Hong Kong’s residential property prices have come off their recent highs mainly because of government measures intended to cool demand — but those measures do not affect retail rents.

“It’s a normal phenomenon for small retailers to be squeezed out by high rents. It happens everywhere,” said Joe Lin, executive director of retail services at the real estate services firm CBRE in Hong Kong. “But in Hong Kong, the pressures have become very severe in the last two to three years — it’s very unhealthy. Luxury and jewelry now dominate 90 percent of the space in prime locations. The whole trade mix in some of these areas has changed.”

Causeway Bay, where Nam Kee Noodles is struggling to survive among high-end clothing and watch retailers, commands the most expensive retail rents in the world: an average of 1,950 dollars per square foot per month, according to an update on first-quarter figures for this year from Cushman Wakefield, a real estate consulting firm.

Two other Hong Kong neighborhoods, Tsim Sha Tsui and Central, also rank among the top five most expensive locations in the world — along with Fifth Avenue and Times Square in New York — easily topping luxury shopping destinations like the Champs-Élysées in Paris and the Ginza in Tokyo.

That has squeezed out many of the colorful mom and pop stores — hardware shops, fruit stalls, herbal medicine vendors, restaurants — that form a large part of Hong Kong’s business ecosystem, changing the face of many neighborhoods in the process.

A few minutes’ walk from Central, which is home to Hong Kong’s financial district, Ngau Kee Food Café, which for many years sold traditional Cantonese dishes to diners perched on rickety stools, shut down in April after the landlord raised the rent from 49,000 dollars to 120,000 dollars per month.

The restaurant’s owner, Mak Ping-Kuen, is hoping to open up again in another part of town but has struggled to find a new site.

“I hope we can reopen as soon as possible. My customers are getting impatient,” he said.

Nearby, two popular bars in the SoHo district have closed in the past few months, again because the owners could not afford big rent increases.

And Tsui Yuen Desserts, which sold delicacies like ginger-flavored milk custard and sweet black sesame soup for less than 20 dollars a bowl, had to relocate from Causeway Bay to Wan Chai, a neighborhood more geared to nightlife than to hungry tourists.

Article source: http://www.nytimes.com/2013/07/04/business/global/soaring-rents-in-hong-kong-push-out-mom-and-pop-stores.html?partner=rss&emc=rss