Demand for F&B spaces expected to grow in Hong Kong post-pandemic

There were 60 new overseas F&B operators that entered Hong Kong since 2020.

While the retail sector has been hit hard by the pandemic over the past few years, the F&B segment has performed relatively better. The sector has evolved with new practices and operations during the pandemic. As Hong Kong moves into the post-COVID era, there are significant growth opportunities for F&B operators to leverage, according to the latest research paper by CBRE Hong Kong, “Hong Kong Viewpoint – Tapping into New Growth Opportunities in the F&B Market”. 

F&B as the outperformer in the retail sector 

The retail sector has been experiencing a downcycle since the pandemic. Hong Kong’s total retail sales declined by a Compound Annual Growth Rate (CAGR) of -10.1% between 2019 and 2021. Retailers of luxury brands and tourist-oriented trades, in particular, have scaled back their operations. In contrast, total restaurant receipts recorded a CAGR of -8.1% in 2019-2021, relatively better than general retail sales. High street shop vacancy has been standing at double-digit levels since Q2 2020, and still reporting 14.4% as of Q3 2022. Since the downturn, F&B retailers have become sought-after by landlords seeking to combat the rising vacancy resulting from discretionary goods retailers' smaller footprint. 

“Despite the difficult business environment, Hong Kong has attracted 60 new overseas F&B operators since 2020. Japanese restaurants were particularly keen, accounting for over half of the new F&B entrants during the period. Indeed, the total number of licensed restaurants continued to increase since the pandemic, at a rate even marginally faster than the three-year period before the pandemic in 2017-2019. While retail sentiment was subdued in recent years, demand from F&B operators continued to fuel the leasing market,” said Marcos Chan, Executive Director and Head of Research, CBRE Hong Kong.

Evolving operations and practices especially on safety, small shop size and shared kitchen

The F&B market has experienced profound transformations over the past few years, with customer habits and behaviours having significantly changed. While the report reveals that hygiene and safety have taken on far greater importance and the use of takeaways and deliveries has become more prominent, it also shows that more F&B operators have adopted smaller and more flexible operations, with smaller shop sizes from approximately 1,000 to 2,000 sq. ft. preferred for lower operational costs. Central and shared kitchens are another popular option that F&B operators have increasingly adopted to control quality and consistency, and most importantly to minimise costs. 

Lawrence Wan, Senior Director, Advisory & Transaction Services – Retail, CBRE Hong Kong: “With the retail sector set to recover, it’s an opportune moment for F&B operators to tap the emerging growth opportunities. Some street shop rents in select locations are now being deeply discounted from pre-pandemic levels, and F&B operators may consider returning. We expect that total restaurant receipts (the demand for F&B) could potentially grow by 18% once the volume of inbound visitors returns to pre-pandemic levels.”

Strategies for expansion – tapping the opportunities around harbourfront promenade areas

Although shopping malls remain attractive options for expansion, competition remains fierce. With high-street vacancy staying at over 10% since Q2 2020, some landlords of high-street shops are now willing to provide attractive lease terms to entice F&B operators. F&B operators are advised to consider shops on secondary streets just around the corner from retail hotspots to avoid higher rental costs and less tenure security on tier-1 locations.

Meanwhile, urban planning initiatives on both sides of Victoria Harbour will transform the city’s appearance and create potential locations for F&B operators. Under the harbourfront promenade development plan, the promenade is currently at 25km long and will be extended to 34km by 2028, improving pedestrian walkability and public enjoyment around the area. 

New office developments in emerging commercial districts will also provide operators with more options outside traditional F&B districts. 

“With high vacancy continuing to ensure Hong Kong remains a tenants’ market in the short term, F&B operators possess strong negotiating power. F&B operators could strategically look at emerging areas around New Central Harbour Front and West Kowloon Promenade, which are being revitalized by urban planning initiatives. Emerging office clusters in Cheung Sha Wan, Wong Chuk Hang, and the Kowloon East hub will provide significant opportunities for F&B,” said Jackie Wong, Associate Director, Advisory & Transaction Services – Retail, CBRE Hong Kong.

The latest research report “Hong Kong Viewpoint – Tapping into New Growth Opportunities in the F&B Market” examines how the F&B sector has performed since the onset of the wider retail market downturn amid the pandemic, highlights the changes in the sector, and provides recommendations for F&B operators seeking new opportunities and hotspots in Hong Kong.

Click here to access the full report.