Retail turnover rent in Hong Kong for stability and mutual benefit
By HK Lawyer AJ Halkes Barrister-at-Law
Faced with an on-going bumpy COVID recovery for the F&B industry and on-going retail uncertainly in Hong Kong “turnover rent” with minimal base rent is the ideal way to create a win-win for landlords and business operators alike and to avoid the “doom loop” type of retail scenario that has hit places like downtown San Francisco.
A constant complaint is that landlords never accommodate downturns in business and blame is almost always laid at their door for business failures, however operators that manage to secure low rents in down markets never approach landlords offering to pay extra rent when business booms or exceeds their expectations. The market is simply lacking balance; which works against longevity and creates instability.
2023 started well for F&B in Hong Kong yet we hit the skids as soon as a run of public holidays, weeks of rain and surges in holiday departures kicked in. By February and March hundreds of thousands headed to the airport after years of being kept in HK due to quarantining complexities, now suddenly free to spend their money elsewhere and they did.
A constant complaint is that landlords never accommodate downturns in business and blame is almost always laid at their door for business failures, however operators that manage to secure low rents in down markets never approach landlords offering to pay extra rent when business booms or exceeds their expectations. The market is simply lacking balance; which works against longevity and creates instability.
2023 started well for F&B in Hong Kong yet we hit the skids as soon as a run of public holidays, weeks of rain and surges in holiday departures kicked in. By February and March hundreds of thousands headed to the airport after years of being kept in HK due to quarantining complexities, now suddenly free to spend their money elsewhere and they did.
The traditionally slow summer months saw more closures in the F&B sector far from any hoped for return to ‘normal’ the summer proved to be a period of grinding to keep afloat or perhaps even time to give up.
In-bound tourism also isn’t recovering as fast as had been expected so opening new ventures in an industry battered by years of losses, staff shortages and slow trading months has not been attractive for exhausted operators.
Landlords now need to play their part by re-working existing leases in the near term toward turnover as opposed to base rents and accommodate the increasingly unpredictable landscape; this will even attract new tenants to open whilst allowing those who have survived the storm to see things through to better days.
Sales achieved is a key metric by which to value a rental property as it distributes rewards equitably and buffers an operator in a way that ensures longevity; it will also deliver upside for smart landlords; hopefully by the end of the year and onward : more will adopt it.
To see what has happened in the USA and what the HKSAR must avoid just click the NBC Report in the (Youtube Link)