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Luxury goods empire and the carnival of "sky-high rents"
Owned by Emperor Entertainment Group, the monthly rent has plummeted from a peak of 7.5 million yuan in 2015 to 1.5 million yuan today, a drop of 80%. This astonishing change not only reflects the drastic shocks in Hong Kong's retail market, but also reveals the profound impact of the epidemic, changes in consumption patterns and the economic environment on the core business district.
This street, which is only 300 meters long, was once a "barometer" of the global retail industry. In 2013, the international real estate consulting firm DTZ released a report that named Russell Street as the "most expensive retail location in the world", with a rent of HK$2,630 per square foot, surpassing New York's Fifth Avenue and Paris's Champs-Elysees. At that time, this was a battleground for top luxury brands - flagship stores of international brands such as Prada, Gucci, and Louis Vuitton were lined up here, the windows were brightly lit all night, and tourists dragging suitcases to shop could be seen everywhere.
The crazy logic of "7.5 million monthly rent"
In 2015, Emperor International rented the entire shop at 22 to 24 Russell Street to Italian lingerie brand LA PERLA for a monthly rent of HK$7.5 million, setting a record for the highest rental price for a single shop in Hong Kong at that time. Based on the property area of approximately 10,000 square feet, the rent per square foot is as high as HK$750, which is the ultimate embodiment of "every inch of land is worth a lot of money." Behind this deal is the golden decade of Hong Kong’s retail industry (2004-2014): the free travel policy led to a “buying spree” among mainland luxury customers, luxury goods sales grew by more than 20% per year, and shop owners enjoyed huge profits from annual rent increases of 30%.
The cruel reality of going from 7.5 million to 1.5 million
The epidemic is just the last straw
In September 2020, LA PERLA ended its long-term lease contract and began to recruit tenants on a short-term basis at 22 to 24 Russell Street, but no one was interested. It was not until 2024 that the property finally signed a long-term contract with a monthly rent of HK$1.5 million, a sharp drop of HK$80% from its peak. This is not an isolated case - the monthly rent of the huge shop on the basement floor of Emperor Watch & Jewellery Centre at 8 Russell Street dropped from HK$9 million at its peak to HK$2 million in 2023; the BURBERRY flagship store at No. 60 on the same street even terminated its lease ahead of schedule in 2020, ending its ten-year lease.
The structural changes behind the data
- De-luxuryization of retail
In 2019, due to the social movement and the closure of borders caused by the epidemic, mainland free-travel tourists disappeared, and luxury goods sales plummeted from HK$101 billion in 2018 to HK$35 billion in 2022. Brands have turned to lower-cost online channels or experiential flagship stores, and the demand for traditional street shops has dropped sharply. - The ecological chain of shops is broken
The pyramid rental structure of the past "luxury flagship store - high street fashion - drugstore" has collapsed. The vacancy rate of shops in the core area will reach 15.6% in 2023, and owners will be forced to accept the three-pronged approach of "short-term rental, sublease, and rent reduction." - A revolution in consumption patterns
Hong Kong's local consumption power is weak, and Generation Z prefers "experiential consumption" rather than ostentatious shopping. Shopping malls such as K11 Musea and Pacific Place attract customers with art curation and immersive experiences, and traditional street-side shops have become "outdated scenes."
Why is the Russell Street myth unsustainable?
The consequences of "free travel addiction"
Hong Kong's retail industry has long been abnormally dependent on mainland tourists. In 2018, free-travel tourists accounted for 42% of retail sales. When factors such as the political environment, visa policies, and exchange rate fluctuations change, the weakness of lacking a diverse source of customers is fully exposed. In contrast, in business districts such as Tokyo's Ginza and Seoul's Myeongdong, local consumption accounts for more than 60%, and their ability to withstand external shocks is stronger.
The backlash effect of real estate hegemony
Over the past twenty years, real estate developers have squeezed retailers' profits by signing long-term contracts and increasing rents every year. Taking Chow Tai Fook as an example, its 2022 financial report shows that rental costs account for 18% of revenue, while the average of international peers is only 5-8%. When the market turns, landlords would rather leave their shops empty than significantly reduce rents, exacerbating the imbalance between supply and demand.
The fatal blind spot of urban planning
The government has long allowed shops in core areas to become "luxury-oriented" and neglected the balance of the community's commercial ecology. Lee Garden Road and Percival Street around Russell Street were originally filled with tea restaurants, bookstores and other popular businesses, but they were replaced by chain drugstores and jewelry stores in the rental frenzy, and eventually became a "stereotyped tourist area."
Permanent changes in consumption patterns after the epidemic
The epidemic has accelerated the shift of consumers from offline to online, and the convenience and price advantages of e-commerce have weakened the competitiveness of physical stores. Even though the tourism industry has gradually recovered after the epidemic, the consumption habits of mainland tourists have changed, and luxury consumption has shifted more to duty-free shops or overseas markets, and Causeway Bay's attractiveness has declined.
Pressure from high rents and operating costs
During peak periods, rents on Russell Street can reach $858 per square foot, posing a huge challenge to retailers' profitability. During the epidemic, retailers' revenues plummeted, and many brands chose to reduce store size or exit high-rent markets. Even though the rent has now dropped to $172 per square foot, it is still a considerable expense for some brands.
Market competition and the rise of emerging business districts
Hong Kong's commercial real estate market is undergoing a reshuffle. The development of emerging commercial districts such as West Kowloon and Tsim Sha Tsui has attracted the attention of some brands and consumers. The rents in these areas are relatively low and the supporting facilities are more modern, posing competitive pressure to traditional core areas such as Causeway Bay.
Uncertain economic environment
The slow global economic recovery and intensified geopolitical tensions have affected Hong Kong's attractiveness as an international financial center to a certain extent. Retailers are becoming more cautious in their expansion strategies, preferring short-term leases or flexible operating models rather than long-term, high-cost leases.
Market inspiration: Adaptation and transformation of the retail industry
The plummeting rents on Russell Street have sounded the alarm for Hong Kong's retail market and property owners, but they have also provided an opportunity for the industry's transformation. Here are a few revelations worth noting:
The rise of flexible leasing models
The popularity of short-term rentals and pop-up stores reflects retailers' response strategies to market uncertainties. Property owners need to adapt to this trend and attract brands by offering more flexible leasing terms. Emperor International’s short-term rental attempt during the epidemic is a successful case.
The importance of diversification
The traditional retail model can no longer sustain high rents, and property owners should consider using commercial space for diversified purposes, such as experiential retail, cultural activities or creative industries. The case of Hins Cheung’s bridal shop demonstrates the potential of non-traditional retail.
Combination of digitalization and offline experience
With the rise of e-commerce, the value of physical stores lies in providing a unique consumer experience. Brands need to increase the attractiveness of their stores through immersive design, interactive activities and other means. Property owners on Russell Street can work with tenants to create more topical consumer scenarios.
Repositioning of rental levels
The current rent per square foot on Russell Street is $172, a significant drop from its peak, but still higher than some emerging commercial districts. Property owners need to re-evaluate rental pricing strategies, balance revenue and occupancy rates, and ensure the long-term competitiveness of the property.
The future of Russell Street: rebirth or becoming a "luxury goods graveyard"?
Short-term survival: from "big shop" to "fragmentation"
The owners began to split up the huge shops of tens of thousands of square feet and rent them out. The former BURBERRY flagship store at 60 Russell Street is now sublet to sports brands, coffee shops and medical beauty centers, and the total rent is 15% higher than when it was a single tenant. This "decentralized" model may become the mainstream during the transition period.
Mid-term transformation: local culture empowers commercial space
Young entrepreneurs have proposed transforming vacant shops into "cultural co-creation spaces", such as introducing local designer brands and holding mini art exhibitions. Refer to the Chifeng Street model in Taipei and use the "alley economy" to rebuild the charm of the neighborhood.
Long-term structural reform: breaking the cycle of real estate hegemony
The government needs to introduce a "core business district revitalization policy", including vacancy taxes, rent controls, and business quotas. More fundamentally, we need to get rid of the reliance on "real estate finance" and develop new economic engines such as technology and culture to provide diversified support for commercial real estate.
Future Outlook: Can Causeway Bay regain its glory?
Although the collapse in Russell Street rents is shocking, Causeway Bay’s status as Hong Kong’s retail heartland has not been completely shaken. With the gradual recovery of Hong Kong's tourism industry and the further integration between the Mainland and Hong Kong, Causeway Bay is expected to usher in new opportunities. However, the road to recovery is not smooth. Here are several key factors that will affect future trends:
- The speed of tourism recovery
The return of mainland tourists is the key to the recovery of Causeway Bay's retail market. With the relaxation of customs clearance policies between the two places, consumer confidence is gradually recovering, but whether the luxury consumption boom of the past can be reproduced remains to be seen. - Innovation of new retail model
In the future, Causeway Bay’s retail industry needs more innovation, such as introducing technology-driven consumer experiences, creating themed shopping districts, or combining it with cultural tourism. These initiatives help attract younger consumers and international tourists. - Policy support and urban planning
The government's policies on revitalizing the retail and tourism industries will directly affect the future of Causeway Bay. Through tax incentives, consumer voucher schemes or urban renewal projects, Causeway Bay is expected to restore its commercial appeal. - Impact of the global economy
As an international city, Hong Kong's retail market is deeply affected by global economic fluctuations. If the global economic environment continues to be sluggish, retailers' willingness to expand may be further suppressed.
Global case comparison: Which cities have escaped the "sky-high rent trap"?
Tokyo Ginza: Balancing high-end and localization
Although Ginza has LV and Chanel flagship stores, it has preserved century-old Japanese confectionery shops and handicraft workshops through the "underground street economy" and has enacted laws to limit the excessive expansion of foreign brands. Its shop vacancy rate has been lower than 5% for a long time, and the rental fluctuation range is only one-third of that in Hong Kong.
London's Oxford Street: From retail desert to experience economy rebirth
Affected by the impact of e-commerce, the vacancy rate of Oxford Street reached 10% in 2018. The local government promoted the "Business Improvement District" (BID) plan, subsidizing brands to build experience spaces such as AR fitting rooms and pop-up stores, and transforming vacant shops into art exhibition halls, successfully increasing the flow of people by 30%.
Orchard Road, Singapore: Government-led rent control
The Urban Renewal Authority of Singapore has established a "Core Retail Area Rental Index", imposed surcharges on property owners who increase rents excessively, and required shopping malls to reserve 20% of space for local brands. In 2023, Orchard Road shop rents will only fall by 15% from their peak, making them much more resilient than Hong Kong.
Russell Street at dusk, a crossroads in Hong Kong
From monthly rent of HK$7.5 million to HK$1.5 million, the plunge of Russell Street is not just the decline of a street, but also a microcosm of Hong Kong's economic transformation. When the "free travel bonus" recedes and the "real estate myth" is shattered, this city must face up to deep-seated contradictions: should it continue to indulge in the illusory afterimage of the "shop speculation economy", or should it learn from its mistakes and rebuild a diverse, inclusive and sustainable business ecosystem?
In the new market environment, flexible response, innovative management, and accurate grasp of consumer needs will be the key to Causeway Bay's revival. The "plunge" in rents on Russell Street may be a crisis, but it may also be an opportunity for the retail industry to undergo transformation. Can Causeway Bay of the future find a new positioning in the transformation? The answer may be hidden in the blank windows on Russell Street that have not yet been filled with luxury logos.
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