Luxury retail out, food and beverages in as cheaper rents spark change in character to Hong Kong’s malls and streets
The character of Hong Kong streets and shopping malls is changing as more overseas food and beverage operators and retailers catering to local consumers move to the city to take advantage of sharp falls in rent, says Tom Gaffney, CBRE’s managing director for Hong Kong, Macau and Taiwan.
He expects retail rents would hit bottom in 2017 after a further 15 per cent decline this year. In 2015, overall retail rents fell by 20 per cent.
“The retail market is not completely dying, but rather undergoing a structural transformation from one that is highly driven by luxury consumption goods to one that is more relying on mid-market brands and products,” he said.
Besides mid-market brands in fast fashion, cosmetics and banking services, food and beverage operators have become more active, said Gaffney, who brought Jamie’s Italian restaurant chain to Hong Kong before he joined CBRE early this year.
The retail market is not completely dying... [it] is more relying on mid-market brands and products
Last year, about 37 food and beverage brands established in Hong Kong, while about 10 new brands have set up in the city so far this year, he said.
F&B contributed 40 per cent of revenue to CBRE’s Hong Kong retail business last year, up from 15 per cent in 2014.
One of CBRE’s leasing transactions was negotiating for Seafood Room, which is Bulldozer Group’s first restaurant in Asia, to secure the top floor of Tower 535 in Causeway Bay. Bulldozer is one of the biggest restaurant groups in Eastern Europe and the UAE.
CBRE is talking with some Korean cuisine operators that want to find new retail space in the city, Gaffney said.
To tap the growing demand, CBRE plans to form an F&B business team to work with its offices in the US and London to bring new restaurants to Hong Kong. The new team is expected to start operating in September.
“We have seen the [F&B] trend expanding into Hong Kong in the last six months,” he said.
Most of the F&B operators specialise in European cuisine such as Italian and French, while some are Russian. Others include Asian restaurants serving Korean, Japanese and Thai dishes, Gaffney said.
Given weaker spending on luxury items, Hong Kong shopping malls have been restructuring their trade mix to accommodate more restaurants and cafes as a way to retain shoppers.
The city’s total retail sales decline eased to 7.5 per cent, improved from a 9.8 per cent decline in March, to an estimated HK$35.2 billion, according to government data.
During the retail boom in 2012 and 2013, Gaffney said F&B outlets only accounted for 10 per cent of space in shopping malls, but this has increased to 20 per cent and in some cases even 30 per cent.
However, the rent payment ability of restaurants was just about a quarter or less than what a normal retailer could pay in terms of square foot. For example, a F&B tenant can afford HK$100 per square foot, while other retailers such as fashion could afford HK$400 per square foot with some even able to spend HK$1,000 per square foot, Gaffney said.
“More F&B outlets will come to Hong Kong which will be overseas retailers’ first choice of expansion destination,” he said.
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