Rentals up, businesses out

Rentals up, businesses out

On Christmas Day, Japanese-inspired cake shop Kki served its delicate mousse cakes for the last time at its Ann Siang Hill location.

The owners started packing up the shop, a go-to place for fine desserts and quirky knick-knacks, on Boxing Day. It had opened four years ago, together with its co-tenant, indie retail shop The Little Drom Store, in a ground level shop space along the pedestrian-only part of the street.

So, why move out when business is good? Rental there is set to increase by about 140 per cent.

Kki's co-owner Delphine Liau, 36, says the landlord wants to up the rent on the 990 sq ft shop space from $6,300 a month to $15,000 a month. The owners have decided not to renew the lease, which ends on Tuesday. Ms Liau's husband and Kki's co-owner Kenneth Seah, 41, adds: "It is becoming harder and harder to run a business when rentals increase by such sharp amounts."

He and his wife, and the owners of The Little Drom Store, are looking for new premises to set up shop.

In a booming restaurant scene, rising rents have led to some restaurants closing shop and others to move from established locations. Other factors include the perennial manpower shortages, and reasons ranging from poor business to wanting to focus on family.

Figures from the Accounting and Corporate Regulatory Authority show that 575 restaurants were set up between January and November this year. This translates to about 52 restaurant openings a month.

During the same 11-month period, a total of 435 restaurants closed, equating to a nett increase of 140 restaurants, more than double the increase in 2011, when the figure was 59.

Last year, there was a nett increase of 149 restaurants from January to December.

Restaurants that have closed this year include Wok & Barrel in Duxton Hill, Le Saint Julien at The Fullerton Waterboat House, Oversea Restaurant at Shaw Towers, Preparazzi in Boon Tat Street, The Big Sheila in Swan Lake Avenue and Foodbar Dada at Robertson Quay.

Those slated to close in the coming months include Graze at Rochester Park, Bomba and Kha in Martin Road by next month, and One On The Bund and Au Jardin.

Rising rental

Kki and The Little Drom Store are not the only ones moving out due to increases in rental.

Gourmet burger restaurant Relish at Cluny Court, which opened in 2007, will also be closing because of a 40 per cent rise in rent. It moves out in the first quarter of next year.

Its chef-owner Willin Low, 41, is looking for a new space in the area. "With a 40 per cent hike in rental, there is no way that I can cope - there is only so much you can increase menu prices by."

The seasoned chef-restaurateur, who is also behind eight-year-old modern Singaporean restaurant Wild Rocket, says he has been "in the business long enough to know what kind of rent is sustainable".

He closed Wild Rocket at Mount Emily's Hangout Hotel last month with the intention of finding a new location to reinvent itself. Closing, he adds, had nothing to do with high rent.

But after a thorough search for a space with a similar vibe and reasonable rental, he has now decided to reopen at the Hangout Hotel in June, after the hotel undergoes a renovation.

He says rental there to begin with was reasonable.

"Where most landlords are increasing rental, my landlord at the Hangout Hotel has decided to decrease it," he says, although he will not reveal by how much.

Italian and Mediterranean restaurant Gattopardo will move out of its space at Hotel Fort Canning at the end of this month. Its last day of operations is Tuesday. Its chef-owner Lino Sauro, 43, says rental there is set to "almost double".

"It is an amazing location and we would love to stay but with the increase, we can't afford to."

Instead, he will relocate to 34 and 36 Tras Street, opening at the new location just before Chinese New Year.

Also hit by rental hikes this year is the Akashi Group, which closed two of its restaurants - Akashabu in Funan DigitaLife Mall and Grandma's at nex, after their leases ended.

Other relocations include The Fat Cat Bistro, which moved out of its Jalan Riang space in Braddell Heights estate in September. Co-owner Gina Kunalan, 39, felt the rent hike "did not make sense given the area". The restaurant has reopened in Holland Village's Lorong Liput earlier this month and although rental there is higher, it is "reasonable", given the food enclave's popularity and potential, she says.

But rentals, analysts say, are a result of supply and demand. For instance, trendier areas in popular enclaves usually command higher rents.

Malls managed by Reits or Real Estate Investment Trusts, also tend to increase rents as pressure is on managers to grow revenue. At times, rental properties on the fringe areas near these malls also take the opportunity to increase rentals in tandem.

For many smaller food and beverage groups or single restaurant owners, rental, they say, takes up about 15 to 25 per cent of total revenue.

The head of consultancy and research at property consultancy SLP International, Mr Nicholas Mak, who is in his 40s, says that for many landlords, increasing rent is an opportunity to grow their returns. But sometimes, landlords can be misinformed or become greedy.

He adds: "Landlords should treat their tenants as business partners and not objects to be exploited. The property market moves in cycles. What was once a landlords' market can turn into a tenants' market later."

Other reasons for closures

Some of the closures this year can be attributed to a shortage of manpower in the food and beverage sector. One of the latest casualties hit by the manpower issue is Cera, a 48-seat vegetarian restaurant in Upper Thomson near Springleaf Road. It opened in July and closed last month.

When its former chef-partner and assistant cook left, co-owner Beatrice Wee, 23, a pastry chef, was left to tend to the kitchen with just one kitchen helper and a couple of part-time waitstaff. She had to rope in her housewife mother to run the front-of-house full-time, and help out with other duties such as paper work and washing up. Her uncles and aunts also stepped in to help with service whenever they were free.

Job advertisements for cooks and waitstaff were answered mostly by foreigners, which the new restaurant did not have the quota to hire, says Ms Wee.

The Manpower Ministry's current labour laws stipulate that foreign workers can make up only 45 per cent of staff in a restaurant, down from half.

She says: "Business was increasing but we couldn't cope because we just didn't have enough manpower. It's also difficult for small establishments that are just starting out to get manpower because we are unknown and also do not have the muscle to pay above market rate like larger restaurant groups."

Earlier this year, modern Singaporean Wok & Barrel also closed because of manpower issues, while other restaurant groups have revamped concepts to include more self-service components to cope with the staffing issue.

Other reasons for closures this year include that of poor business.

Oversea Restaurant, an offshoot of a popular Chinese restaurant chain in Malaysian famed for its honeyed char siew, closed in February because "the restaurant was not performing up to expectation".

Restaurants such as Foodbar Dada at Robertson Quay and La Villa in River Valley Road closed because the premises' redevelopment plans.

Looking ahead

Mr Andrew Tjioe, 55, executive chairman of the TungLok Group and president of the Restaurant Association of Singapore, says: "I think the industry is feeling a lot of heat from issues such as high rental and manpower shortages. It will be a case of survival of the fittest."

He cautions that many restaurant businesses that may be struggling and have resorted to slashing prices or offering massive discounts to help increase cashflow, may not survive. In the process, such acts may also threaten the existence and livelihood of profitable restaurants that have good business models.

The rise of neighbourhood shopping malls may also put downward rental pressure on prime locations in the future, he says. But what is here to stay is the manpower issue, which he warns, will worsen.

He says: "Looking forward, businesses will have to innovate with automation, new concepts and less reliance on manpower."

rltan@sph.com.sg


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