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Russell Street – from tram station to bastion of luxury
From humble beginnings as a transport hub, Russell Street overtook Fifth Avenue in New York as the world's most expensive shopping street in 2012. Fast forward four years to today and its array of luxury watch and jewelry stores are facing a slowdown in the mainland Chinese economy and tumbling overseas visitor numbers.
"As a result of the changing tourist profile, Russell Street rents have reduced by 40-50 percent, with further corrections ongoing. Overall, Hong Kong retail rents dropped 20-22 percent in 2015 and this year we are forecasting another 15 percent dip," says JLL Hong Kong's Head of Retail, Terence Chan .
"Rents at well-established shopping centres such as Times Square are expected to remain flat because they have a good tenant mix, hold many promotions and events to keep up the foot traffic, and offer retailers lower set up costs than freestanding stores," explains Chan.
In recent days, Russell Street has settled back to earth from stratospheric heights in terms of sales, rents, and the prestige of the brands along the thoroughfare. It's still a bustling, prosperous shopping district, even with retail sales down in May for the 15th consecutive month.
Retail sales fell 8.4 percent in May 2016 compared to the same month in the previous year, after dropping 3.7 per cent for the full year 2015, according to government figures.
Chinese tourists still make up 70 per cent of all arrivals in Hong Kong, but the mix of visitors is changing and with it shopping trends. The "day trippers" replacing the flood of luxury shoppers, for example, are more likely to be in search of mid-priced watches such as Tissot, rather than Rolex, Cartier and Omega.
The new wave of Mainland visitors are coming from a wide range of cities in China, often passing through Hong Kong on multi-entry visas for a day or two on their way to other destinations. Hong Kong offers them an attractive mix of familiar language, family visits, shopping and food.
This is far from the first retail revolution Russell Street has experienced however, and is unlikely to be the last. A Hong Kong Tramways depot until 1989, redevelopment transformed the road's dynamic, and in 1994 the Times Square shopping centre opened. "Retailers included popular mango desert restaurant Hoi Lau San, as well as rising local brands such as City Chain and Bossini," remembers Chan, who has been working in Hong Kong retail real estate for 25 years. "It was difficult then for new international brands entering the market, such as Sunglass Hut, to secure space in traditional shopping malls. So they opened street level shops with lower rents, and then moved into mainstream retail space later".
Over time, the stature and price points of the brands along Russell Street grew. Russell Street was turned into a pedestrian street in 2000, and by 2004 it boasted some of the world's highest retail rents.
The area prospered during the decade of seemingly ever-increasing luxury goods sales, with the influx of Mainland tourists spurred on by the attractive Reminbi/Hong Kong Dollar exchange rate and the lack of sales tax in Hong Kong. At the height of the retail boom, major tenants were jewelry and watch retailers and big brand names such as Prada. Chan says shoppers should expect more affordable local and international brands to expand their presence on Russell Street in the short- to medium-term, as the area evolves once more to cater for a more price-conscious clientele.
Find out more about JLL's Retail services, or contact Terence Chan.
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