More Hong Kong restaurants and shop tenants are looking to surrender spaces for 'free', as coronavirus and government response bite

By Lam Ka-sing kasing.lam@scmp.com / https://www.scmp.com/business/article/3077727/more-hong-kong-restaurant-shop-tenants-are-looking-surrender-spaces-free?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp&utm_content=3077727 | April 6, 2020 10:21 AM SGT
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Restaurant operators and shop tenants across Hong Kong are looking to give up their spaces in greater numbers amid an economic downturn that started with the city's anti-government protests last year and has worsened during the Covid-19 outbreak.
The number of shops and restaurants seeking replacement tenants to take over their current leases totalled 140 as of Tuesday at one agency " Midland IC&I " alone, representing an increase of 7.7 per cent over August last year, just after the protests took a turn for the worst.
Restaurant operators "would rather offer them for free because they still have to pay rent" even though they have suspended operations to reduce losses, said Edwin Lee, founder of Bridgeway Prime Shop Fund Management. The operators might need to compensate landlords, or risk being sued if they do not pay rent, which is why they are not charging any fee from tenants who might replace them.
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"Very often, since the rent is relatively high, people do not want to take them," he said, adding that dine-in and high-end restaurants had seen the biggest declines in sales.
About 100 such restaurants were up for grabs last year, but the number could rise to as much as 800 by the end of 2020, said Raymond Ng, marketing manager at Build-U-Biz, an online business selling platform that is currently hosting about a dozen such listings. "[The restaurant operators] simply do not want to pay rent. If they can find a replacement tenant [at current rent rates], they will offer these spaces cheaply," said Ng. Before the protests started, the platform did not have any such listings.
The coronavirus pandemic has worsened the situation. "During the protests, some restaurants could still be open. Now, most must close day and night," Ng added.
About 1,000 restaurants have closed since June last year, according to an estimate by the Association for Hong Kong Catering Services Management made in mid-March. The industry body said another 1,000 could close in the coming two months if the pandemic persists beyond April.
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The social distancing measures introduced by the Hong Kong government to curb the spread of the outbreak have also dealt a big blow to the restaurant industry, said Nicky Ho, assistant research officer at Midland IC&I. Owners' "hurry" to get rid of their restaurants can be attributed to poor prospects, as the "market remains pessimistic", Ho said.
"Even if people go out, they tend to get takeaway only and seldom dine in. The catering industry is a difficult business," she added. "Quite a number of [Chinese restaurants] have closed " some really could not survive any more."
These establishments were barely earning enough to cover rent and wages. "Many retailers and food and beverage operators have suspended operations temporarily to limit losses," said Martin Wong, associate director of research and consultancy in Greater China at Knight Frank. "We expect retail sales values in the coming months to continue to fall off a cliff."
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"The reason they cannot survive now is the current storm, the pandemic," said Raymond Cheng, an agent at China United Property Agency. "They do not want to persist any more. The impact of the pandemic is like that of Sars [severe acute respiratory syndrome]."
Hotpot restaurants, cha chaan teng or tea cafes, as well as Chinese and western restaurants in protest-hit areas are among restaurants up for grabs.
A 3,200 sq ft cha chaan teng near the MTR station in Prince Edward, which can accommodate about 100 people, is available for HK$280,000 (US$36,108) a month. According to the listing, its owner recently spent HK$4 million on renovations. The cafe's rent per square foot is about HK$88, which is higher than the HK$81 that another shop in Prince Edward commanded mid-November last year, according to Midland IC&I data. But rents have probably fallen further since. A 3,800 sq ft western restaurant and bar with a terrace in Tsim Sha Tsui is going for HK$198,000 a month.
"Many people are just waiting for subsidies [from the government] before they close," Bridgeway's Lee said. "The worst has yet to come. Now, with the second wave of the pandemic, vacancy rates will climb further. One in five shops will be closed while another one in five will be suspended [eventually]."
Elsewhere, a couple of shop owners have been offering vacant stores at a token rent of HK$1 a month for businesses supplying face masks, cleaning and health products, as well as to doctors and non-governmental organisations.
More shops are also changing hands at steep losses. A jeweller's shop on the protest-hit Park Lane Shopper's Boulevard near Tsim Sha Tsui police station sold this month for HK$40 million. It changed hands for a loss of about HK$30 million including other expenses, the biggest such loss ever in Hong Kong.
"With vacancy rates of street shops rising, shop rentals are expected to shrink further, [maybe even] faster than the drop in retail sales," Knight Frank's Wong said. "We expect the Covid-19 pandemic to have a long-term impact on Hong Kong's retail scene and for it to be a long journey for the retail sector on the road to recovery."
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.