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Hong Kong sees deeper retail rent cut as global brands cool off

[HONG KONG] Rents are expected to fall as much as 40 per cent this year in Hong Kong's bustling shopping district of Causeway Bay, until recently the world's most expensive retail street, hit by a slowdown in visitors, particularly cash-rich mainland Chinese.

Some landlords are seeking rents as much as 40 per cent below last year's peaks, outstripping analysts' forecasts of drops of about 15 per cent in 2015, but some retailers say the reduction might not be enough to offset weak sales.

"Many retailers are focused on improving the same stores'sales, instead of opening more stores," said Caroline Mak of the Hong Kong Retail Management Association, pointing to a drop-off in tourist arrivals, especially those from the mainland.

"Hong Kong retail has been weak in the first half and we can't see anything positive in the second half." British luxury goods maker Burberry says its Hong Kong comparable store sales fell by a double-digit per centage in the quarter ending June 30, becoming the latest brand to show business is hurting.

If sales weakness persists, Burberry said, it may push for lower rents for its 17 Hong Kong stores at lease renewal time.

Some of the biggest retailers, such as jeweller Chow Sang Sang Holdings and casual wear brand Giordano International Ltd, have shut stores and frozen expansion in the past year, as mainland Chinese tourists, their key customers, have dried up.

Years of strong sales, fed by visitors' voracious appetite for everything from cosmetics to watches, had allowed retailers to pay some of the world's highest rents, such as in Causeway Bay, which beat out New York's Fifth Avenue as the world's priciest retail space three years ago.

Hong Kong's retail sector has also been hammered by tighter visa rules on residents of the neighbouring southern Chinese city of Shenzhen, lower mainland import taxes on some items and street tension between the cross-border cousins.

Many retailers have been forced to hold summer sales earlier than before, some offering discounts as high as 70 per cent.

Visitor numbers to Hong Kong rose 3.6 per cent in May on the year, down from year-earlier growth of 10.8 per cent, Hong Kong Tourism Board data shows. Mainland tourist numbers in May rose 5 per cent, down from growth of 13.1 per cent a year earlier.

Hong Kong May retail sales were down 0.1 per cent by value on the year, following a revised drop of 2.1 per cent in April and a decline of 2.9 per cent in March, as slower tourist arrivals hurt sales of big-ticket items.