Rental Illness

Taking the road less traveled can mean a bigger space and better returns.

Toby Cooper is the owner of The Globe, a generously sized and massively popular British gastropub on Graham Street.  While this sloping side street off of SoHo has been The Globe’s home for three and a half years now, longtime patrons will remember that the pub used to be located on the busy main artery that is Hollywood Road, right by the mid-levels escalators where Zabon Ramen now sits. This ground-floor, high-traffic location was where Cooper started when he took over the business 10 years ago. He had been paying $77,000 per month for the less-than-1,000-square-foot space until his lease expired in 2010, when all of a sudden he was asked to cough up $135,000 instead—nearly double what he was paying.

“The problem I had down there was we got a new landlord, which is often the case,” Cooper tells us. “[The unit] was sold twice in quick succession and the guy who bought it doubled my rent.” Seeing no room for negotiation—Cooper’s highest bid was $100,000, and the least the landlord would take was $120,000—he decided to look elsewhere.

“If the landlord hadn’t pushed me, I wouldn’t have moved,” Cooper says. But the move has turned out to be a blessing in disguise. Cooper was able to find a space on Graham Street that was four times the size of the Hollywood Road venue, at a more reasonable price—albeit on a street that was much less traveled, at least by SoHo standards. But this inconvenience didn’t seem to matter to The Globe’s growing number of customers. “Now I have the same crowd, but just more of them,” Cooper says of his new location. “I think what moving to Graham Street has shown me is I don’t need to be on the escalator. I don’t need to be in the middle of Lan Kwai Fong. What we’re offering is a little bit different. At the end of the day we’re tucked away in a basement. But if people can find us here, they’ll find us anywhere.”

It certainly wasn’t a hassle-free journey along the way, and the battle isn’t over. “You’re only as good as your current lease,” Cooper says. “These things obviously go in cycles. And Hong Kong being Hong Kong, it’s a landlord’s market at the end of the day. They’ll take as much as they can.”  

Despite all the challenges, Cooper is still keen on opening another establishment sometime soon. “I’m looking for a new shop to do something else,” he confirms. As to where it might be: “There are a lot of spaces available, and they’re never at the right price point. You’re never going to find a bargain. You’ll have to weigh the pros and cons of every side. But if a good location comes up, you’ll pay for it.”

Just a block down from the old Globe, on Lyndhurst Terrace, some boutique shop owners have also had to endure stiff rent hikes in recent years. One of them was Joyce Jay, proprietor of Antique Patisserie, who opened her first shop on 32 Lyndhurst Terrace, where Costume National currently holds court.

“I chose the location because it was a big street and it was easy to attract customers. The rent was $80,000 a month, but that location was OK,” Jay says. “Two years later, I thought I might as well look for somewhere bigger, after someone bought up the whole building. My second location was a couple shops ahead, was much bigger, and the rent was $100,000. I stayed there for two years and was still able to cover my costs, but it was getting a bit hard.”  

From there, the numbers just grew higher. Two years into Jay’s new contract her landlord gave her a letter saying they were going to raise the rent to $150,000. “At that time I had two other shops going, and this one was basically soaking up what I was making. On top of rent, you’ve got your salary, your utilities, everything. That’s when I had to do a third move.”

The current Antique Patisserie is located on stair-lined Mee Lun Street, just off of Gough Street in NoHo. “The [foot] traffic is much less, but the rent is $37,000, which is much better,” Jay says. “I signed a longer four-plus-two [four years fixed, two years floating] lease. After two years, rent goes up by 10 percent—I figured this would be less than market rate. But if after six years I still have to move again, I might really consider
not doing it anymore.”

Jay’s fears aren’t unfounded. The quaint and quirky NoHo neighborhood has long been home to Chinese greasy spoons and trendy western-style boutiques alike—but this might be changing all too quickly. Four months ago, Gough Street stalwart Ngau Kee, a cha chaan teng that saw long queues for lunch every day, shut its doors after the landlord jacked its rent to $100,000 per month—up from the humble $10,000 they were paying in 2005. (See our interview with owner Mak Ping-kuen at tiny.cc/hk-ngaukee.) Bigger players such as Ralph Lauren and Agnès b. have meanwhile taken the opportunity to move in, shop by shop.

“I was surprised when I saw Ralph Lauren. I was like: really? Here?” says Jay. But for her, the Gough Street story is still preferable to the untamable SoHo development that drove her out of Lyndhurst Terrace in the first place. “I have no regrets opening my shop on Lyndhurst Terrace, because that gave me a lot of exposure,” she says. “But if I could do it again, I might have started off on Gough Street instead. This way, I could’ve done more marketing and invested less in the rent.”

Jay also has some sound advice to offer to potential restaurateurs:  “If you open a new F&B business now, go to the alleyways—the little streets.”

Family-friendly restaurant chain Fat Angelo’s has had to move around its various branches so many times during its 15 years in operation that it’s frankly hard to keep track.

“The first one was on Canal Road in Wan Chai,” owner Andy Chworowsky tells us. “It’s no longer there. The second one was in Tsim Sha Tsui and that’s no longer there in its original form, because we had to move it… as well as the third one, as well as the fourth one, as well as the fifth one.”

“The sixth one in Tsuen Wan is the only one still in its original premises, but last year, we had to return 30 percent of the premises to the landlord and pay twice as much rent,” Chworowsky continues. The reason was always the same: Fat Angelo’s would be granted a lease on a site, operate smoothly for the length of the lease, and when the lease expired, the landlord would hike the rent.

Take the chain’s second restaurant in Tsim Sha Tsui, which opened in 1999. Chworowsky was practically begged by the then-landlord, a bank, to move into a large 7,000-square foot space that had until then been vacant for years. He signed a good deal, paying $150,000 per month for the space—but he hadn’t exactly grabbed the hottest spot in the neighborhood, either. “It was at the end of a dark street, where not much was going on. We went in there, and boom—it’s packed all the time, and other things start opening up, and all of a sudden the street’s a place.”

And we all know what follows. “The bank sold [the property], and the guy who bought it flipped it within six months. By the time our lease finished, the landlord said, ‘It’s $450,000 now.’ Thus begins the odyssey of restaurants.”

It was a similar tale for Fat Angelo’s Elgin Street staple, which managed to last 13 years before being forced out. The rents escalated in sharp increments soon after the original six-year lease was over, and by the time it hit $300,000 per month, the restaurant was barely breaking even. And then it went up to $600,000—which was all but impossible for
a 100-seat, mid-range operation to sustain.

“I can’t bitch and moan. I believe in the free market as much as the next guy,” Chworowsky says. He believes that interference with the system—with concepts like rent control—would disrupt the order of things. “In many ways, Hong Kong is the concept of perfect competition,” he argues.  

“But I do think it’s a problem. We’re paying our rent and our fixed costs for the first 27 days of each month. And then we get three days [of profit]. I guess the frustrating thing is no matter what happens every month, the landlord gets his check, but we have to make that property work and take that risk all the time. Want to know how to make a small fortune in F&B? Start with a large fortune.”

To meet this challenge, Chworowsky has had to alter his business strategy. “You’re constantly looking for ways to be more efficient,” he says. “The formula for value is quality divided by price; to affect that, you can increase quality or lower prices.” Lowering prices simply isn’t sustainable in the current environment, so that leaves only one option. “We started out as a lower mid-scale family-type restaurant. We have to acknowledge we can’t survive with that average check anymore. So we have to raise our quality, since we also need the price to go up,” he explains.

Fat Angelo’s currently stocks some of the juiciest quality-for-money steaks on the market at its three locations in Kennedy Town, Tsim Sha Tsui and Tsuen Wan.

“[But] If my rent doubles, I can’t double my prices immediately,” Chworowsky continues. “Given that in general rent in Hong Kong has doubled over the last five years, you’ll see prices going higher eventually.”