The rise of ghost kitchen rentals

The advent of cloud kitchens, also known as ghost kitchens, has caused a major upheaval in the culinary scene in recent years. Both foodies and business owners are intrigued by these online eateries that operate without a physical location.

The emergence of ghost kitchens in Malaysia has been especially notable, prompting concerns about their effect on the real estate market.

Ghost kitchens offer a lot to potential restaurateurs. They require a much smaller initial investment compared to traditional brick-and-mortar restaurants, making them more accessible to a wider range of people.

Before the introduction of cloud kitchens, delivering food from malls was challenging due to the time it took for a driver to park, enter the mall to collect the food and then deliver it.

A dedicated kitchen that only takes delivery orders helps reduce delivery times from restaurants to consumers.

Operating a traditional restaurant typically comes with costs that many new restaurateurs struggle to afford and maintain, including rent, utilities and staffing.

Ghost kitchens are a completely different story because the setups are less expensive, can be in non-prime locations and require a fraction of the employees.

It is akin to a co-working style kitchen that accommodates multiple brands from the same or different owners operating in the same premises, as opposed to one single building for one single brand.

Typically, this takes the shape of an independent structure that is separated into smaller kitchen booths, each leased to different tenants and brands.

The primary goal is to reduce expenses because tenants don’t have to pay as much for employees or physical infrastructure.

Additionally, operators can experiment with different menu items and cuisines without worrying about signing a long-term lease for a physical space, thanks to the flexibility that ghost kitchens provide.

To accommodate consumers’ evolving dining preferences, the ghost kitchen food service market is divided into a few different categories based on consumer types.

These typically include takeout, delivery and virtual restaurants, each catering to specific customer needs and driving market expansion.

With 84.2% of Malaysians using the Internet, market research company Mordor Intelligence reports that the number of cloud kitchen outlets grew by 12.43% in 2022.

The rising popularity of quick-service cloud restaurants is due to young people’s propensity to eat fast food frequently.

As of 2022, it was found that approximately 84% of young students in Malaysia preferred fast food because they perceived it as more economical and convenient compared to home cooking or traditional restaurant prices.

The number of properties being converted or rented out for this purpose has naturally increased in response to the surge in demand.

Landlords and developers of commercial real estate have realised that renting out spaces to ghost kitchen operators can be profitable. Consequently, competition in the ghost kitchen rental market has increased.

Market valuationsUOB Foreign Direct Investment Advisory forecasts that the Asia-Pacific region will witness the most significant expansion in the cloud kitchen market, with an anticipated annual growth rate of 14.4% from 2021 to 2027.

This growth is primarily attributed to food service providers increasingly focusing on food delivery to cater to customers who favour dining at home.

In 2021, the global market for cloud kitchens reached an astonishing RM253.3bil.

The latest report from Research and Markets, titled “Cloud Kitchen Market: Global Industry Trends, Share, Size, Growth, Opportunity and Forecast 2021-2027”, projects this figure will surge to RM485.34bil by 2027, with a steady compound annual growth rate of 12.4%.

The report attributes this surge to the increasing prevalence of smartphones, easy access to high-speed Internet and the abundance of delivery services.

The rising trend of ordering food online and doorstep delivery, facilitated by digital disruption and technological advancements, has significantly contributed to the expansion of cloud kitchens.

Moreover, the emergence of cloud kitchens has been driven by a focus on convenience, comfort and service quality.

The evolving lifestyles of millennials, with their rising disposable incomes and demand for convenience, have also played a pivotal role in the ascent of virtual kitchens.

Property prices affected?Landlords and property developers are acknowledging that turning existing commercial spaces into ghost kitchen facilities is a viable option as the demand for these virtual kitchens grows.

As a result, the number of homes being listed for rent with ghost kitchen units has risen.

Ghost kitchen rentals’ effect on real estate values is a complex topic with conflicting opinions.

One way or another, the rising demand for ghost kitchens may result in higher rental prices for properties that fit the bill.

Landlords may be able to demand higher prices as more business owners compete for the limited availability.

This may be advantageous to property owners who have transformed their spaces into ghost kitchens.

However, there is no guarantee that the existence of ghost kitchens will result in a notable rise in property values.

The lack of physical storefronts and foot traffic may limit their impact on property appreciation, even though they can still boost a neighbourhood’s overall economic activity.

Furthermore, the long-term sustainability of the ghost kitchen model remains uncertain and any sudden decline in demand could have negative consequences for property values.

The impact of ghost kitchen rentals on property prices may vary depending on several factors, including the location of the property, the specific characteristics of the rental space and the overall economic conditions in the area.

Ghost kitchen rentals might have a more noticeable impact on property values in desirable areas with high demand for food delivery services.

Conversely, the effect might be less significant in less desirable neighbourhoods or during recessions.

In Malaysia’s culinary scene today, the emergence of ghost kitchen rentals is pushing the food and beverage sector forward.

These kitchens are beneficial to both consumers and business owners, but their exact effect on real estate values can be difficult to pinpoint.

While the concept has been around for nearly a decade, its strong re-emergence during the pandemic has prompted renewed interest and discussion.