10 points to note when renting a store: location, costs and more

With the market recovering, whether you are preparing to expand your business offline, or you are planning to open a physical store right away, it is important to understand how the leasing process works! This article aims to introduce some of the basics of leasing a shop. Throughout this article, we clarify the costs and risks that may arise during the leasing process, and explain ten common questions and solutions regarding leasing!

Leasing procedure in a nutshell

\While it certainly isn’t easy, renting a shop isn’t as difficult as it looks. Generally speaking, it can be summarised into the following several steps:

1. First, contact a real estate agent or broker to inquire about available properties nearby, or visit preferred locations to see if there are vacant locations up for rent.

2. Arrange a visit to your preferred spot with a real estate agent. You want to observe the area by paying attention to the location, footfall and neighbouring shops. Learn all the amenities and any restrictions of that location. 

3. After you have decided where to rent, contact the landlord to discuss the details of your contract. Usually, those details include lease term, rent, rent-free period, handover date, contract renewal terms, renewal rights, early termination clauses, and clarify the responsibility for miscellaneous expenses such as rates, management fees, utilities, internet fees, and property maintenance costs.

4. Once both parties have agreed on the terms and the signing date of the contract, a lawyer drafts the contract and everyone signs the contract to complete the leasing process.

If you are working with a real estate agent who provides professional assistance, you may encounter fewer problems. However, to protect your rights, you are advised to have some basic knowledge and understanding of the leasing process.

Some common questions on renting a store

Question 1: Which type of shop is better - ground floor shop, upstairs shops, or in a mall?
Before opening a shop, it is important to consider the type of location that you want for your business. If you have a limited budget, opening an online store without a physical location is good enough, but there are advantages to having a physical shop. A physical shop allows direct interaction with customers and you can better understand customer’s preferences. It can also be benefitted by the traffic of the physical location. In Hong Kong, the most common types of shop spaces include ground floor shop, upstairs shops, or locations in a mall.

Ground floor shops
✅ easily get footfall, making it easier to attract new customers
✅ more suitable for industries such as restaurants, snacks, clothing and beverage shops, etc.
❌ Rents for street shops are relatively expensive

Shops in Malls
✅ Shopping malls are usually managed by security companies, with air conditioning. 
✅ Comparable footfall to ground floor shops.
✅ Benefits from the mall's marketing strategies: Shops in malls may benefit from the mall's traffic, marketing and promotional campaigns. This allows businesses to leverage the synergy of the mall's theme and attract customers. 
❌ Restricted by the mall's operating hours; unable to operate 24/7.
❌ Large malls may refuse to lease shops if the business type or scale of merchant does not align with the mall's branding. 

Upstairs Shops
✅ Relatively cheaper rent
✅ Upstairs Shops generally have larger and more usable areas compared with ground floor shops
✅ Suitable for businesses that operate both online and physical stores
❌ Lack of stable footfall

Question 2: Should you inspect the area, location, and footfall before renting a shop?
Before renting a shop, merchants should conduct on-site inspections. Pay attention to the traffic and area nearby.

It is better to have more traffic around the shop; if the location is near an MTR station, schools, residential estates, restaurants, etc., that would be even better. Additionally, it is important to note if there are any construction projects, noise, garbage dumping grounds, or businesses operating with a similar target market of yours nearby so as to assess the competition and other relevant risks.

Furthermore, the customer base in the area can also influence the choice of renting a shop. In areas with predominantly residents, such as Cheung Sha Wan, Choi Hung, Kwun Tong, etc., shops will usually target customers from the neighbourhood. Therefore, certain business types such as groceries, snack shops, restaurants, household goods stores, pharmacies would probably be a better choice. On the other hand, in areas with fewer residential estates and are more touristy like Causeway Bay, Sheung Wan, Admiralty, Central, where traffic mainly consists of tourists or Hong Kong residents who come for shopping on weekends, it may be more suitable for high-end fashion brands, jewellery stores, and expensive electronic products shops targeting tourists.

Question 3: What amenities does the location have? Does it include a terrace and restroom?
The facilities provided in the shop can also affect your decision – one of those factors is the restroom. Some shops may not have a restroom inside, which can be inconvenient for tenants. If you are in the F&B industry and you expect diners to dine in, having diners go out of your shop to go to a public restroom might cause inconvenience.

Even if you see a toilet seat inside your store, it doesn't necessarily mean that it is a proper restroom. Some landlords may install a fake toilet seat that’s not properly connected to the drainage system to deceive tenants. In some locations, the restroom may not be divided into male and female sections, which can be very troublesome for tenants. Paying attention to these small details when renting a shop can help avoid many issues during the renovation process.

Question 4: Does the building have any unauthorised building work?
According to relevant regulations, Unauthorised Building Works (UBWs) refer to any additions or alterations of the building that have not been approved or agreed upon by the Building Authority and do not comply with the regulations.

The most common UBWs include air conditioner supporter frames, signboards, canopies, flat roof structures, TV screens hanging on the exterior wall, unauthorised transformation of walls into glass windows, or improperly connected sewage pipes. Some street-level shops may be classified as open-air spaces in the building plans but due to unauthorised structures, they become ineligible for a business licence “by accident”.

If the rented shop is later targeted by the Buildings Department for removal of UBWs, it will significantly harm the tenant. If the tenant is lucky, that might just mean the business has to cease operation for a few days to remove whatever is illegal in the location; if it becomes more serious, it might either mean a termination of the lease contract (due to the size of the shop shrinking during the process and the tenant might find that to hinder their business) or severely harm the business’s opportunity to apply for a business licence. 

To avoid such unexpected situations, the simplest way is to search at the Land Registry to ensure that your desired location does not have any UBWs. In addition, when renting or taking over a store space, you can also consider hiring a building inspector to assist.

Question 5: Is the location suitable for your business?
Not all locations are suitable for all types of businesses. The most common example is that certain shops may not be suitable for F&B businesses due to them not meeting fire safety regulations. Even for locations you prefer, significant costs may be required to renovate the store.

Another scenario to consider is taking over an existing business and paying a takeover fee. The takeover fee refers to an additional payment made by the tenant when signing the lease to use the existing equipment and facilities in the shop. While it might seem that the tenant can save a lot of renovation costs, it can also backfire. If a tenant takes over a restaurant but then discovers the location does not match the requirements needed for their new business, the tenant will have to renovate again or install additional equipment, which incurs more costs.

Question 6: Do you know the market rates of that area?
When renting a shop, tenants should not only read the contract and confirm the rental rates, but also pay attention to two things during the rental process.

Firstly, check the layout of the shop. If the layout includes a lot of sharp edges, terraces, balconies or thick walls, that might mean you are leasing spaces that are not usable. Unscrupulous landlords may include parts of common areas, such as mechanical rooms, elevators, and common spaces as a part of the size available to scam tenants.

Another important aspect for tenants to confirm is the rental rates of similar shops in the same area. By conducting thorough research on the rental market rates and comparing them to the proposed rent for the shop you are considering, you can make an informed decision and ensure that you are getting a fair rental price for your business. It also provides you with leverage during negotiations with the landlord, as you can present evidence of the prevailing rental rates in the area to support your position.

Question 7: Do you know the backgrounds of the shop owners you are renting from?
Tenants should try to understand the background of the landlord. A small portion of owners rent out their properties purely for rental income and are generally speculative. Even when renting shop spaces in large shopping malls, there may be cases where developers focus solely on profiting from renting out the shops and have no intention of developing the mall itself. Before renting a shop, it is helpful to gather information about the background of the property owner to avoid leasing from unscrupulous owners with poor-quality shop spaces.

Question 8: Does the location you are renting comply with fire safety regulations?
According to Hong Kong regulations, all commercial premises or commercial buildings that are in the process of becoming commercial premises must comply with the Fire Safety (Commercial Premises) Ordinance introduced by the government. This ensures that users and visitors are provided with adequate fire safety protection. Violators can be fined up to HK$25,000.

Most buildings or shopping malls are already equipped with fire safety facilities that meet the required standards. However, if you are in the F&B industry, the regulatory requirements will be a bit tighter. It is advisable to hire a professional licensing consultant to inspect and assist with the application process in advance.

Question 9: Are there any restrictions on the renovation of the shop you are renting?
During the planning and renovation process of your shop, you may encounter two potential issues.

The first issue is that the landlord may not approve certain aspects of the renovation. For example, if your renovation involves altering the layout, removing and rebuilding rooms, or constructing or demolishing non-load bearing walls, some landlords may explicitly state their disapproval in the lease agreement.

In order to maintain the theme and keep in with the branding of the mall, mall management teams may require your shop's interior design to align with the mall's ambiance. Additionally, due to considerations for other tenants, renovations within the mall have stricter requirements regarding construction time and noise standards.

Question 10: How long is the rent-free period? 
After the rental contract has been established, the tenant usually needs to carry out shop renovations. During the renovation period, as business cannot be conducted, most landlords stipulate a certain rent-free period and exempt the tenant from paying rent. The actual duration of the rent-free period may vary. Although there are no legal regulations specifying that landlords must provide a rent-free period, many landlords generally offer a minimum of two weeks to attract tenants, and longer if the market is weak. Once the rent-free period expires, the leasing period officially starts.

Calculating hidden costs to fit your budget

The above list mentions 10 common questions when renting a shop and offers various solutions and considerations. In reality, what are the specific and detailed costs involved in opening a shop in Hong Kong? Let's take a look at the following table:

Apply for KPay Smart POS Terminal
No rental + installation fee and supports 15 payment methods
After securing a location, you might want to cover popular electronic payment methods in the market all at once. If you want to do that while avoiding any rental fees and installation fees, why not consider applying for the KPay Smart POS Terminal? New merchants can now enjoy a limited-time offer of $0 transaction fees (a rebate of transaction fees when revenue hits HK$30,000), plus additional cashback and discounts up to $5,100*. For more details on the offer, click here.

Simple application process!
1. Fill out your company’s information on KPay's official website.
2. Our digital payment consultants will contact you to understand your needs.
3. KPay will arrange a specialist to install the KPay Smart POS Terminal for you.

Access to 15 mainstream payment tools
KPay Smart POS Terminal supports various common electronic and contactless payment tools in the market, such as Octopus, AlipayHK, WeChat Pay, major credit cards, BoC Pay, Apple Pay, etc. With one terminal, merchants can meet all their electronic payment needs and thus eliminate the need for multiple payment devices. Not only does this preserve a lot of valuable physical space for the shop, it is more convenient for customers to make purchases.

Real-time access to transaction records; one app to manage all transactions
KPay Merchant App allows merchants to gain access to real-time turnover and transaction records. There is also in-depth data analysis that analyses sales trends and compares sales according to payment methods. These analyses and reports can be downloaded at any time. Our Smart POS Terminal not only facilitates payments, but also allows for comprehensive sales data analysis, enabling businesses to understand and seize business opportunities.

Simple setup and flexible handling of daily payments
KPay Smart POS Terminal is easy-to-learn. It is wireless, allowing for flexible placement of the terminal. Merchants do not have to spend time on applying for various electronic payment providers and dealing with different transaction rates and settlement deadlines. Settlement with the KPay Smart POS Terminal is fast, with funds typically deposited into the merchant’s bank account within three working days.

Multiple authoritative certifications for security
KPay Smart POS Terminal complies with PCI DSS Level 1 security certification. PCI DSS security standards are the highest standard in the industry, equivalent to the security levels for credit card and bank card transactions, which should assure a safe and sure payment process.

*Terms and conditions apply