A drop in Chinese tourist numbers is driving down shop rentals in Hong Kong, with vacancies increasing in the same prime areas that just three years ago pipped New York's Fifth Avenue to become the world's most expensive retail real estate.
Spooked by months of cross-border tensions and pro-democracy protests, tour groups visiting Hong Kong from China plunged about 80 percent this month, dealing a blow to the retailers that had built their businesses around these mainland visitors' once insatiable demand.
A Chinese government crackdown on lavish spending which shows no signs of letting up has also encouraged tourists to shop further away from home, just as a drop in the yen and the won make Japan and South Korea more attractive destinations.
That has further dimmed the appeal of Hong Kong's Causeway Bay, where renting a 500-square foot space (46 square meters) - the size of a school classroom - can cost HK$500,000 ($64,000) a month.
"If they don't cut the rent, I will leave," said the head of a consumer goods chain that also has a shop in Causeway Bay. Revenues have fallen 30 percent over the past year as the number of mainland visitors fell by half, he said.
"We can't bear the costs," he added, declining to be named as he did not want to highlight his company's financial situation.
Hong Kong retail sales in January fell to their lowest level since 2003, a factor property agents said prompted more retailers to negotiate lower leases, or just move out.
The decline in sales also coincides with plans by several luxury retailers, including Chanel and Compagnie Financiere Richemont SA's Cartier, to cut prices in Asia to counter the sharp decline in the euro.
"Their businesses aren't doing so well, so they decided to essentially hand the keys back to landlord," said Tom Gaffney, head of retail at property consultancy Jones Lang LaSalle.
Property consultancy Savills says average prime street shop rentals fell 8.5 percent year-on-year in 2014, as the number of Chinese tourists began to fall.