Hong Kong property

Hong Kong rents fall, letting overseas restaurants and small eateries fill the void

Falling rents are a draw for new food concepts

PUBLISHED : Wednesday, 23 December, 2015, 6:23pm
UPDATED : Wednesday, 23 December, 2015, 7:49pm

Hong Kong’s retail landscape once dominated by luxury retailers is undergoing a dramatic change with small eateries and foreign restaurants making their debuts as rents fall, according to property consultants.

With ground level shop rents expected to tumble as much as 30 per cent in 2015 when the final data is in, and a further 15 per cent fall next year, industry experts believe more opportunity for the expansion of restaurant operators than three years ago.

“Some businesses are holding back on new investment in anticipation that more retailers will be forced to close their business after the lunar new year. Then, they will have a good chance to ask for a bargain from landlords,” said Helen Mak, the retail services group head at Colliers International.

She said many of foreign restaurants are waiting on the sidelines to enter Hong Kong once the retail rents fall to reasonable level.

Japanese ramen group Tetsu, made its debut in Hong Kong early November, renting a 1,200 square feet street- level shop along Canal Street West, Causeway Bay.

The shop was previously occupied by the health and beauty chain Watsons, which took over a small Chinese restaurant in 2012, a time when many small eateries were pushed out by retailers selling jewellery, watches and cosmetics as mainland tourism visit to the city exploded.

Lawrence Ng Wai-yip, managing director of Create Restaurants Hong Kong, which is the franchisee license holder of Tetsu brand in Hong Kong, said the firm has been searching for the right location for some times.

“The smaller the shop the more expensive in terms of per square foot,” he said.

Fortunately, the Japanese ramen shop didn’t need a prime locations where rentals have been driven up by jewellery and watch retailers and luxury brands that catering to tourists.

“Our clients will look for us once they fall in love with our noodles. Most of them are repeat customers,” Ng said, adding that rental expenses account for about 20 per cent of their operating costs.

In Central, a mainland and Hong Kong- backed fund just open a fusion restaurant at Nan Fung Tower where monthly rents is HK$50 to HK$60 per square foot.

“We have seen more private clubs and wine bar looking for expansion in Hong Kong,” said Mak.

Rents at Russell Street in Causeway Bay, one of the world’s most expensive for retail, have plunged by 60 per cent since October as a number of international brands have refused to renew their lease agreements.

The change in strategy came after retail sales in Hong Kong fell for an eighth consecutive month in October, amid a decline in the number of mainland tourists coming to Hong Kong.

Retail sales in October amounted to HK$37.2 billion, a 3 per cent decline year on year, after a fall of 6.3 per cent in September, the Census and Statistics Department reported on November 30.

The value of sales of jewellery, watches and valuable gifts decreased by 17 per cent over the month, following a year-on-year fall of 22.9 per cent in September.

The mainland’s anti-corruption campaign and the changing spending patterns of tourists were cited as the reasons for the pull-back in demand for luxury goods in Hong Kong.

In 2013 food and beverage operators accounted for only 29 per cent of the leasing deals handled by property consultancy JLL. For 2015 that figure has increased to more than 50 per cent.

“There are in discussions with a number of overseas restaurants to open their first outlets in Hong Kong as part of their Asian expansion plans,” said Michelle Chiu, an associate director at JLL’s retail department. “They come from the United States, Europe and Southeast Asia.”