* Hong Kong shop rents overtook New York's in 2012
* Slowing China growth hitting tourists' hip pockets
* Hong Kong rents facing first fall in a decade - CBRE
By Yimou Lee and Donny Kwok
HONG KONG, July 24 Hong Kong's frenetic Causeway
Bay shopping district is at risk of losing its crown as the
world's most expensive retail space as a slowdown in mainland
tourists hits store sales, paving the way for the first drop in
retail rents in a decade.
Hong Kong shop store rents stood at around HK$4,331 ($560)
per square foot in the first quarter - about 25 percent higher
than those in New York and almost triple similar rents in Paris,
the world's second and third most expensive cities for retailers
respectively, according to property services firm CBRE.
But China's economic slowdown and a high-profile
anti-corruption drive has taken a lot of the fun out of the kind
of conspicuous consumption mainland tourists come to Hong Kong
That means luxury retailers in glittering Causeway Bay are
finding it a little tougher to sell big-ticket items like
jewellery, reducing their ability to afford the area's high
rents and threatening to knock Hong Kong off its perch as the
most sought-after retail space in the world.
"China was the only girl in the dance. Now as China's growth
has started to moderate ... brands are seeing there are other
markets around," said Sebastian Skiff, executive director of
Asia retail services at property consultancy CBRE.
"I probably do see New York regaining the No.1 spot in the
not too distant future - within 2014 or into 2015."
Official figures show growth in mainland tourist arrivals
slowing this year, while growth in spending by overnight
visitors including mainland Chinese dropped to 3.9 percent in
2013 from 11 percent two years earlier.
The city posted a revised 9.9 percent fall in April retail
sales from a year earlier, its worst monthly record since 2009.
May showed a 4.1 percent drop, the fourth straight month of
decline. Hong Kong's Retail Management Association has revised
down 2014 retail sales growth forecasts.
Property consultancies are also slashing their forecasts for
2014, with CBRE saying rents could fall for the first time in a
decade. Knight Frank and Savills now says prime street rents
could drop 5 percent to 10 percent, down from its earlier
forecast of a possible 5 percent gain.
Joanne Lee, research manager at property consultancy
Colliers, said overall rents for street shops in the city's four
main shopping districts would fall this year.
"Causeway Bay will see a sharper decline subject to rising
vacancies," she added.
OUT WITH THE OLD
That drop will not be enough to keep some of the area's
oldest remaining tenants - soaring rents have already seen
noodle shops and tea restaurants replaced with high-end stores
such as Tiffany & Co, Burberry and Rolex.
Siu Kam-lin, 65, who sells preserved bean curd near Russell
Street, recalls the pungent fish odours that wafted around
Causeway Bay more than 50 years ago.
"In the past, these two streets (Tang Lung Street and
Russell Street) were very dirty. Anyone who was a little tidy
would not come here," said Siu, whose family business has been
in the area for 60 years.
"It used to be a street for people to fix frying pans and
sell lanterns," she added.
Siu said she would be forced to move as her landlord is
seeking HK$240,000 a month, from HK$40,000 a decade ago.
Prime shop rents have more than tripled during the past
decade in Causeway Bay, where a tiny 122 square foot (11 square
metre) shop was sold in March for HK$180 million ($23 million).
But as daily necessities such as baby milk powder replace
high-end Gucci handbags on mainland Chinese shopping lists,
rents have started to stabilise and some international brands
are becoming cautious.
"In the last 12 months, we observed that some international
jewellery and watch brands have slowed expansion plans here,"
CBRE retail services executive director Joe Lin said.
Others are trimming costs. Beauty products retailer Sa Sa
International has in December moved its street-level
store on Russell Street to more affordable space on the first
floor of another building on the same street.
Some local fashion brands have seized the opportunity to
move closer to the city centre, although analysts saw no chance
of a comeback for noodle shops and tea houses.
"It's very difficult," Lin said. "Even if the rents go back
to the previous level, they can't afford it."
($1 = 7.7518 Hong Kong Dollars)
(Additional reporting by Twinnie Siu and James Zhang; Editing
by Anne Marie Roantree and Stephen Coates)