Shopping centres are thirsty for bubble tea shops – which pay high rents
Bubble tea shops, with lots of sales, can be charged more rent by shopping centres for the same space as a Chinese restaurant
Retailers selling yogurt, Japanese ice cream or cheesecake treats once were the major driver of leasing demand for tiny shops in prime locations. Now it’s bubble tea’s turn.
The explosive expansion of Taiwanese bubble tea shops has outpaced any of the earlier waves of retailers selling drinks and snack food.
“There are 30 brands in our shopping malls in Hong Kong, and we will have more to come,” said Maureen Fung Sau-yim, executive director of Sun Hung Kai Properties (China). Fung is managing more than 38 shopping malls with a gross floor area of 10 million square feet in Hong Kong and mainland China.
Fung noted one landlord even subdivided a 3,000-square-foot store to make way for six tiny shops at the back of APM shopping centre in Kwun Tong, SHKP’s flagship mall in Kowloon East. The landlord leased two of the spaces to bubble tea operators and another to a snacks seller.
Bubble tea shops have leased a total 100,000 square feet in Hong Kong, she said.
Why are shopping malls so eager to get bubble tea shops in as tenants? Their rents are much higher, due to a scale based in part on sales.
Sales per square foot for a bubble tea operator can reach HK$1,000 to HK$2,000 (US$127 to US$255) per square foot, compared to just HK$400 to HK$500 per square foot for Chinese restaurants, said one market watcher.
“The higher sales retailers manage to generate, the higher rents they required to pay. The relationship between landlords and tenants in malls is just like that of business partners, rather than just increasing base rents,” the market expert said.
Kevin Lam, executive director and head of retail services for Hong Kong at Cushman & Wakefield, said most of these operators ask for a shop size of about 250 square feet to 300 square feet, with a monthly rent of HK$300 or HK$400 per square foot in areas with high levels of foot traffic.
“Many tea brands from Taiwan and mainland have not arrived yet. We are helping two new entrants looking for shops in Hong Kong. The sector is expanding at lightning speed,” he said.
Their maximum monthly rental budget is generally HK$100,000, he said.
“Locations must be close to schools, offices and areas where young people are hanging out, like Mong Kok, Jordan and Central,” he said. “They are also one of the favourite tenants at shopping malls as these shops are able to bring in large crowds of young people.”
The business model of tea operators has changed dramatically in the past 20 years, he said.
“Twenty years ago, most operators were just selling bubble tea from Taiwan and later developed into cafes serving snack food and deserts. The rapid development only started five or six years ago with small grab-and-go shops,” he said.
“The entry level is low. But how to sustain the business is the most challenging,” he said.
Helen Mak, senior director and head of retail services at Knight Frank consultancy, said there were 62 different brands of bubble tea in 282 shops in Hong Kong as of July.
“The success of Heytea in the mainland has further encouraged more operators to enter the trade,” she said.
Tony Lo, a director at Midland IC&I, which focus in trading shops, office and industrial units, said the fast expansion of the sector comes at a time the retail market is softening, making it more affordable to open stores at the busiest locations.
For instance, rents at individual street-level shops in Mong Kok and Causeway Bay have been dropped about 30 per cent to 40 per cent from the peak level in 2014.
“[Bubble tea operators] could hardly get any shop spaces three or four years ago,” he said.