Landlords of Hong Kong’s “Ginza-style” commercial buildings are slashing rents by up to 40 per cent and shifting their focus away from restaurants and bars to survive the dramatic downturn in the catering and retail sectors caused by the coronavirus pandemic.
As rents of street-level shops and restaurants have tumbled, these projects – buildings typically packed with cafes, bars and small shops on higher floors – are struggling to retain tenants.
With no sign of a rebound in the food and beverage industry, some of them are now targeting a new tenant mix including such businesses as beauty parlours and medical clinics.
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“If you enlist tenants without transforming, the [rent] offers will be very low because there are too many choices,” said James Luk, sales director at Midland IC&I. “Street shops have had their rents slashed, and social distancing rules have hit the catering industry very seriously. So the vacancy rates [in the Ginza buildings] are high.”
Named after one of Tokyo’s busiest shopping districts, the term Ginza is used by real-estate agents to refer to commercial properties shared by many different businesses under the same roof. The term was coined when sky-high rents for street-level shops forced stores in the city to move upwards, where space was more affordable.
Such commercial buildings are usually in relatively small single blocks. They sprouted across Hong Kong, especially in tourist districts like Causeway Bay and Tsim Sha Tsui, during a boom in tourism to satisfy demand in a city famous for its shortage of space.
Their landlords, particularly those in Causeway Bay, traditionally preferred to lease to restaurants as they could boost footfall and afford higher rents.
The new strategy is to market the premises to businesses in other sectors, rather than wait – potentially for a very long time – for a meaningful recovery in the food and beverage industry, Luk said.
Buildings seeking to transform include Circle Property Development’s Circle Plaza and Circle Tower in Causeway Bay, according to Centaline Commercial. Circle did not immediately respond to a request for comment.
Such buildings in Causeway Bay are more than half empty now – a phenomenon described by Luk as “horrible”.
Before the social unrest in the second half of last year, occupancy of such buildings could reach 95 per cent. Monthly rents could reach about HK$60 (US$7.74) per square foot.
Rents of Ginza-style establishments have fallen 30 to 40 per cent since then. In Causeway Bay, the rate would be less than HK$40 per square foot now.
Potential tenants are more inclined now to choose a premises at street level, which have become cheaper. Street shops in places like Jaffe Road only cost around HK$60 per square foot a month now. Before social unrest and the health pandemic, they could fetch over HK$100 per square foot.
Luk was hopeful the change in tenant mix would help improve vacancy but it has not shown a marked sign yet because it has only just started.
Ernest Tse, senior principal district sales director at Centaline Commercial, said a total lack of demand from restaurant owners for space in Ginza-style buildings was driving their transformation to serve different purposes.
“No tenant would rent it. There is no demand,” said Tse. “That’s why they change; it’s easier to find doctors.”
Tse said the trend would continue in the next three to four months since the catering industry was “a disaster”, particularly for hotpot and buffet restaurants that would usually rent such spaces.
Martin Wong, associate director of research and consultancy in Greater China at Knight Frank, was equally pessimistic.
“The food and beverage sector will continue to suffer the hardest hit, and restaurant receipts are expected to further contract in the third quarter,” he said. “As consumption sentiment remains weak, the retail market is unlikely to hop on the trajectory of recovery for the rest of 2020. Therefore, we may see more cases of substantial rent cuts later this year.”
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