The property is on Bridge Street in Caernarfon but the back of the structure on Poolside fell apart at about 8.30pm on Sunday evening.
Police and firefighters rushed to the scene. The building was unoccupied and it is understood noone was injured.
As daylight dawned the full scale of the damage became clearer. One tradesman, who did not wish to be named, told the Daily Post: "My wife and I were sat in the living room. I heard a rumble and thought it could have been a car."
He added: "The teenagers go along (Poolside) and drive through the tunnel because their exhausts make quite a loud noise."
The tradesman said his wife looked out the window and saw blue lights from police cars and fire engines at the scene.
He said he later saw firefighters illuminating the area and some had torches. He added: "That building has been empty for many years. There was scaffolding on it for over 10 years then they took it down - it has been allowed to go to wrack and ruin."
Gaynor Morris, 57, runs the busy Caffi Cei next door to the affected building. She had been away but came back at about 8.45pm on Sunday to find fire crews and police cars at the back of her business.
Her own building's owner was contacted and established it had had no damage. "We're open as normal."
Another trader, who works nearby, said the collapsed building had been in a poor state of repair.
"It had bee...