Why is Prada opening a giga-store in Hong Kong?

The Prada Group has announced an upcoming expansion of its presence in Hong Kong with the opening of a new 740 square meter store in the K11 Musea shopping mall, marking its first significant retail expansion in the city after several years of downsizing in the region, including the closure of its flagship store in Causeway Bay in 2020. The new store will span two floors. Construction work is expected to begin soon, with the opening planned for early next year. According to Bloomberg, the rent for this store will likely be partly based on sales. Prada's return to expansion in Hong Kong is notable given that the brand, which once had nine stores in the area, reduced them to six by 2020 with the closure of the flagship in Causeway Bay, one of the most expensive retail locations in the world, which at the time seemed almost a sign of the times. That closure was certainly dictated by a cost control policy, as in the midst of the pandemic, which lasted much longer in China than elsewhere, that store had a monthly rent of $1.2 million.

Indeed, as noted by Bloomberg, rents in Hong Kong's central business districts have decreased significantly since the pre-pandemic era. In Tsim Sha Tsui, where K11 Musea is located, rents on major shopping streets are 45% below 2019 levels, according to Cushman & Wakefield Plc. Despite social unrest and economic slowdowns, Hong Kong's high-end shopping malls continue to attract wealthy international clients who provide a stable revenue stream for brands, beating the declining trends seen in mainland China due to duty-free policies, which make shopping more convenient and whose upper spending limit was raised at the end of June by the Chinese government. It is no coincidence that high-end malls like K11 Musea are enhancing their appeal through collaborations with brands such as Louis Vuitton, which hosted its first fashion show in Hong Kong at the mall last year, but also other mega-brands reinvesting in Hong Kong's prime retail districts. Hongkong Land Holdings Ltd., along with tenants such as Hermes and the aforementioned Louis Vuitton, is investing $1 billion to improve the Landmark in Central. Hysan Development Co. is renovating the Lee Gardens complex in Causeway Bay, with luxury brands such as Hermes and Chanel expanding their presence.

The resurgence of luxury retail in Hong Kong can be attributed to several factors beyond the primary one, namely the decrease in rental prices. As Savills explains, brands are eager to capitalize on Hong Kong's strategic position as a gateway to mainland China and its very wealthy local population. In 2024, visitor numbers are expected to rise back up to 55 million, aligning with pre-lockdown levels. Luxury malls and real estate developers in Hong Kong are also improving their offerings to attract both brands and wealthy shoppers. For example, as noted in the South China Morning Post, Hongkong Land's retail portfolio in Central is seeing significant investments, with plans to innovate and optimize retail spaces. This includes partnerships with luxury brands such as Sotheby’s and The Macallan to create state-of-the-art exhibition and retail spaces. The overall positive outlook is supported by a favorable tax environment, a diverse population, and Hong Kong's longstanding reputation as a premier shopping destination - all factors that collectively contribute to optimistic forecasts for the growth and recovery of the luxury retail sector in the city.