Soaring rents are forcing cinema operators to downsize, relocate, or even shut down in prime districts, such as Causeway Bay.
And the immediate outlook for the industry is likely to get even bleaker as some landlords opt not to renew tenancies of cinemas on ground- or lower-level floors in shopping malls, in order to relet the space to luxury goods retailers who can pay much higher rents, letting agents said.
UA Cinema Circuit is reopening on the 12th floor of Times Square in Causeway Bay, having failed to secure the renewal of its lease on lower-floor premises with a street-level entrance; and at the IFC mall in Central, Palace IFC cinema and restaurants had little choice but to downsize or be edged out by luxury goods retailers after rents were raised by up to 40 per cent as leases came up for renewal.
"Put simply, a cinema operator can't keep up with rental spikes along Russell Street in front of Times Square, which is now full of shops selling luxury goods mainly to tourists from China," said Jason Wan, senior account manager at Centaline Property Agency.
"If you were a landlord would you rent high-premium premises on the street level to a cinema operator or go instead for luxury- goods retailers who can pay much higher rents?
Besides, times have changed," he said, and rather than pay more than HK$100 to watch a 3D movie in a cinema, more and more people were now opting to watch movies in the comfort of their own homes with their family members.
But cinema operators dismissed the dim view of the sector's prospects taken by agents.
MCL Multiplex Cinema general manager June Wong said cinemas would continue to play a vital role in society as going to the movies was a form of social activity that would always appeal to many Hong Kong people. "The tradition among family members and friends of having fun together by eating out and going to the movies will always be there," she said.
For landlords it was useful to have a cinema in their tenant mix, because they drew crowds, thereby helping generate customer traffic in the shopping malls in which they are situated, she said. "Before or after going to the movies, many movie-goers do their shopping or dining, and landlords recognise this crowd-drawing power of cinemas."
UA Cinema Circuit general manager Chan Chi-leung said downsizings and relocations were actually a blessing in disguise for cinema operators, contrary to many expectations.
"A relocation or revamp always uplifts cinemas, giving them a new life and refreshing the whole establishment."
Relocating to upper floors did not have a negative impact on box office takings, Chan added, because patrons did not mind going up to a higher floor, especially if they had become accustomed to visiting a cinema in a particular building.
Chan cited the case of the firm's cinema in Windsor House in Causeway Bay opposite Park Lane Hotel.
The facility used to have seating for more than 1,000 people, but this has since been reduced to just over 200.
"We've reduced the number of seats, but with new installations, including seats, projection equipment and a sound system, our Windsor House cinema enjoys the highest attendance among movie houses in Causeway Bay today," he said.
Rising rents were also not the sole reason for cinemas to move to upper floors of shopping malls. "Cinemas actually don't need to be situated on lower floors. If people want to see a movie in their favourite cinema, they'll simply just go," Chan said.
Chan declined to comment on media reports that UA Cinema used to pay a premium monthly rent for its lower-floor premises in Times Square.
"Ten years ago it was necessary to have a cinema on a lower floor. But now that customers are used to going to our cinema there, they won't stop going and this is good for everyone. Our relocation will enable us to update our technology and create new facilities, and this is good for all moviegoers," he said.
Rosella Lo, an account manager at Midland Realty, agreed that cinemas helped attract people to shopping malls, but said many people were averse to going to upper floors to visit a cinema.
"Many will only be enticed to visit a cinema on the upper floors if they have a concentration of restaurants, which is what Times Square offers," she said.
Lo said commercial rentals in Causeway Bay were now stagnant due largely to the property cooling measures adopted by the government early this year.
She predicted that rents would remain largely unchanged in the coming months, a phenomenon which will be favourable to retailers.
Looking ahead, MCL Multiplex Cinema's Wong said she did not foresee the entry of any new cinemas in the urban areas over the next few years. "No large shopping malls are being built in the urban areas so there won't be any new supply of cinemas," she said.
While it was possible to convert old commercial or industrial buildings to accommodate cinemas, this was easier said than done.
"In the absence of new shopping malls, this is an option that we might consider. However, we need various provisions, like sufficient ceiling height and a good configuration, especially stadium-type seating," she said.