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HONG KONG: Landlords of street-level shops in Hong Kong are demanding big rent increases as leases come up for renewal, forcing tenants to quit in search of cheaper premises.
The rolling rent rises have extended from primary to secondary locations, despite a market outlook that remains clouded by global economic uncertainty.
Restaurant operators on Canal Road West and Leighton Road, Causeway Bay — which cater for a largely local clientele — have been informed by their landlords that rents will increase by up to 110%.
“Rents for street-level shops in first-tier locations have increased to sky-high levels, and the ripple effects will fuel rent rises in fringe areas. Disregarding locations, landlords think every shop is now a goose that lays a golden egg,” said Joe Lin, senior director of retail services for property consultancy CB Richard Ellis.
Lin said hotels catering for big-spending mainland China tourists have provided a shot in the arm for retail properties. In June, the 258-room Best Western Hotel at the junction of Bowrington Road and Canal Road West opened. With the soon-to-open 90-room Vela Pacific in Morrison Hill Road, there will be six hotels in the area.
Japanese restaurant Wallmann Market, located near Best Western, will close this month after the landlord raised the monthly rent to HK$180,000 (RM69,000) from HK$85,000. Owner Ruby Wong said it is extremely difficult for small restaurants to survive. She opened the 1,000 sq ft restaurant eight years ago, when her monthly rent was just HK$45,000.
“Our set lunch sells for HK$40 and most customers are white-collar workers from nearby offices. If I increase the set lunch to HK$60, who will come? We are not a jewellery store, or an international flagship store that can afford to pay high rent.”
Wong said the big increase arose mainly because the new owner needs to justify its investment after buying the shop for HK$45 million in March. The yield under the old rent would be only 2% a year. But a monthly rent of HK$180,000 would now bring a yield of 4%.
A step away from Wallmann, the 600 sq ft kebab shop Pakora & Spice will also close this month.
“We are struggling to survive as rental and food costs keep rising,” said Mable Chan, a former web designer who opened the shop with her husband eight months ago. “The landlord has accepted our early termination as he believes he will generate higher rents from the next tenant.”
Chan said food costs alone had jumped 30% this year, making it difficult for a small shop like hers to compete with fast food chains like Maxim’s, which opened recently in the area.
The 3,000 sq ft Nam Ah Restaurant in Leighton Road, which serves Singaporean and Malaysian cuisine, will close its doors in November after its landlord increased its rent to HK$360,000 from HK$255,000.
“We cannot sustain our business at a rent exceeding HK$300,000 a month. No matter how hard I work, it is impossible to make a profit,” said owner Lam Doon.
Lam said he has found a 4,000 sq ft premises on the first floor of a commercial building in a nearby area in order to continue operating. Rents there were only one-third of the new asking rate, he said.
“It is a most difficult time to do business now as rents spiral upwards. It is the first time we have had to relocate to an upper floor since my father started the restaurant in 1964. At the peak of our business we had five outlets. Now we are down to only one,” said Lam.
Helen Mak, a director of retail services at Colliers International, said the recent dramatic change in market sentiment had had little negative impact on the retail leasing market, and she was unaware of any retailers holding back on their expansion plans.
“Since 1996, noodle shops and rattan furniture stores in Canton Road, Tsim Sha Tsui, have been edged out by jewellery retailers who can pay rents of millions of dollars a month. It is hard to blame landlords for charging higher rents if the area is undergoing a dramatic change,” she said.
