HK's new property developments to stimulate F&B growth

Growth via the F&B sector is in store for Hong Kong’s emerging districts, said a report published by real estate services provider CBRE. Called Hunger for growth — Unlocking opportunities in food and beverage retail, the report highlights how Hong Kong’s F&B sector has remained resilient despite the weak overall retail market. With numerous commercial and residential development projects planned for the next five years, CBRE predicts that the strong growth momentum of the F&B sector is unlikely to slow anytime soon.

Marcos Chan, head of Research, CBRE Hong Kong, Southern China and Macau, said: “Unlike most other retail segments, food is a necessity. Therefore, the F&B sales are generally more resilient during economic downturns. Median households in Hong Kong allocate around 10%- 15% of their incomes on eating out, irrespective of the economic cycle. The F&B sector is also less dependent on tourists compared with other goods, such as luxury items.”

CBRE said the number of licensed eateries in Hong Kong has increased by 37% from 2003 to 2015. According to the Census and Statistics Department, while total retail sales dropped by 3.7% year-on-year last year and further declined by 10.5% year-on-year in the rest half of this year, total restaurant receipts grew steadily by 3.9% year-on-year and 2.5% year-on-year respectively over the same periods.

Joe Lin, executive director, Advisory and Transaction Services – Retail, CBRE Hong Kong, added: “Long working hours, easily accessible public transport options and smaller apartments have all discouraged the working population in Hong Kong from cooking at home and encouraged them to dine and socialise outside.”

Landlords favouring  F&B tenants

In view of the changing retail landscape and the growth potential  of F&B, commercial property landlords are becoming more willing to sign F&B operators and have allocated more space in their portfolio for F&B tenants. Shopping mall landlords are also acknowledging the eects of bars and restaurants in enhancing their positioning and increasing footfall to benefit other retailers.

Another noteworthy trend, said CBRE, is the incorporation of fine dining restaurants in premium one buildings, which helps landlords raise the prole of their properties. These floors usually command premium rents over conventional retail space due to their unobstructed views, open spaces, balconies and sky gardens. So far, nine out of 230 grade A office buildings in Hong Kong have F&B floors, with more expected to come.

In addition, more commercial building owners are converting their premises to Ginza-retail buildings to maximize rental returns. F&B floors in less prominent commercial buildings can typically achieve an additional 20% in rental premium compared to office floors.

Future real estate developments to fuel growth of F&B in emerging districts

CBRE’s report said demand for F&B options is likely to grow substantially over the next few years as a result of commercial and residential real estate developments in several emerging districts.

From now until 2020, there will be a total new oce supply of 4.7 million sqf in Kowloon East. e completion of the Express Rail Link Terminus and the West Kowloon Cultural District will contribute another 11 million sql of new office space to the market. see developments are estimated to attract an extra 93,000 workers to the respective districts, creating vast opportunities for F&B operators.

In terms of future retail supply, 88% of the shopping malls scheduled to be completed before 2020 are in non-core areas. In the four core submarkets, over half of the new retail supply (1.6 million sqf ) will be from Ginza-type towers. A total of 23 industrial revitalisation projects have been approved for conversion to retail facilities, providing 1.9 million sqf GFA of space. Most of these properties are in emerging commercial districts such as Kwun Tong (33%), Cheung Sha Wan (23%), and Tsuen Wan (14%).

New residential developments in emerging locations such as Shatin, Tseung Kwan O and Tuen Mun will also result in significant population growth in the next ve years, driving strong demand for neighbourhood dining options.

“The transformation of the Hong Kong retail market is structural and is likely to continue for the foreseeable future. The entire retail market is seeing a general down trend, evidenced by the total decline of 23% in average prime street shop rents from its peak in third-quarter 2014. Landlords are hence softening their stances in lease terms and tenant selection. is represents an ideal time for F&B operators to negotiate better lease terms with retail landlords to expand their footprint. F&B owners may also consider taking up space in emerging districts to save operation costs and capture future opportunities,” Lin said.