Business

Small businesses are priced off Hong Kong's streets

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Image caption Jennifer Cheung shut down her business after her landlord demanded a 60% rent increase

Welcome to Russell Street - the world's most expensive shopping district.

Crammed with umbrella-wielding shoppers after a humid afternoon downpour, the 150-yard stretch of luxury stores is Hong Kong's answer to Bond Street or Fifth Avenue.

The designer brands that cluster along this street and those nearby cater to free-spending tourists from mainland China that have - in little more than a decade -transformed Causeway Bay and other shopping areas in the former British colony.

Gone are many of the grocers, tea houses and noodle vendors that give the city its unique character.

They have been squeezed out by rents that are twice as high as New York and four times higher than London.

And the city is beginning to ask whether the loss of these small businesses will alter the fabric of Hong Kong's streets and stifle entrepreneurship in the city.

"The local businesses that cater for local tastes - that's the real Hong Kong," says Andrew Sheng, president of the Fung Global Institute, a Hong Kong-based think tank.

"That's what Hong Kong people feel attached to, emotionally and culturally."

'Crazy' rents

One victim of the eye-watering rents is Ho Hung Kee, located just a short walk away from Russell Street.

For 39 years, customers sat cheek-by-jowl in the restaurant's tiny booths and tables slurping wonton noodles and congee infused with ginger and spring onions.

But at the end of May, the owners, Patty Ho and her husband, served their last bowl of wonton noodles on the premises. They could not afford the monthly rent of Hong Kong $350,000 ($45,000; £30,000) sought by a new landlord.

"In Hong Kong, the rents are just crazy," says Ms Ho.

She believes the new tenant will be a pharmacy, selling medicine and baby milk formula that are often purchased by Chinese tourists.

Image caption Patty Ho's noodle shop closed in May after four decades

Not far away, another traditional noodle joint that shut its doors in February is now a branch of Swiss watch retailer Rado.

In the days before its closure, the shop attracted hour-long queues of tourists and residents eager for a last meal.

'I had good timing'

In many respects, rising rents are nothing new in Hong Kong. The city has long been one of the world's most expensive real estate markets.

Yet other Asian cities facing similar constraints manage to preserve mom-and-pop shops, says Mr Sheng at the Fung Global Institute.

He says that landlords in Tokyo want to have ramen and sushi makers in their property and in Singapore, planning laws ensure that even the ritziest districts usually feature a "hawker centre" where tasty local food can be bought cheaply.

"The key question we need to ask is, is this inevitable or is this something we need as a community deal with?" he says.

Jennifer Cheung, who closed her business selling customised leather shoes in January after more than eight years in operation, says high rents combined with short leases will discourage young people from starting up their own businesses.

A two or three-year lease is the norm, compared to five to 10 year tenancies in the UK.

"It's very discouraging for entrepreneurship," says Ms Cheung.

"I had good timing. When I started out my rent was less than HK$30,000 a month. Now you sign a contract and it's a million a year."

Faced with a 60% jump in rent and staffing problems, Ms Cheung has decided to relaunch her business online.

"It will be a test but I have a strong niche and customer base."

Image caption Hong Kong's high rents are unlikely to come down any time soon

Changing shopping habits

Joe Lin, senior director of Hong Kong Retail Services at CBRE Group, believes the tide of luxury brands filling up the city's streets is slowing.

In the first three months of this year, prime retail rents were up 8.8% from a year earlier but down from the double digit increases seen in the past three years.

The Chinese government is discouraging open displays of wealth among officials and this has made top tier luxury goods companies more cautious in their expansion plans, he says.

"The retail market is a little bit different. Starting from the second half of last year, they [Chinese tourists] have started to buy more mid-range products. The consumption pattern is changing."

Perhaps evidence that the city's landlords might be getting too greedy is the fact that the sugary pink shop front of Shoegirl - Ms Cheung's business - is still unaltered.

The premises remain vacant months after her departure.

But Mr Lin says that the city's high rents are unlikely to change in the short term and smaller, independent businesses will continue to be displaced.

The next generation

Image caption There are a few signs Hong Kong's luxury retail market is slowing

Ho Hung Kee won't disappear altogether.

The owners' son has opened a fancier restaurant bearing the same name on the 12th floor of a nearby shopping centre, hoping to cash in on the restaurant's recent inclusion in the city's Michelin Guide.

Ms Ho says she is looking forward to handing the reins to the next generation after years of working 12-hour days, seven days a week, but without a street-level shop front she doesn't know whether it will be a success.

"I'm not quite happy about it. This shop has a lot of memories," she says.

"We're the only wonton noodle shop with a Michelin star and we still have to move."