What makes neighbourhood malls attractive in Hong Kong?May 15, 2019 / By
Hong Kong just experienced its first mini Golden Week—a four-day break in Mainland China that began on Labour Day—since the opening of the Hong Kong-Zhuhai-Macao Bridge and Guangzhou-Shenzhen-Hong Kong Express Rail Link in the second half of last year. To escape the crowds, I decided to spend my long weekend close to my home in the suburbs. Unfortunatelyfor me, my neighbourhood malls were also packed with shoppers!
No wonder investors have been showing increasing interest in neighbourhood malls of late, as evidenced by a number of notable transactions in some of the city’s ‘New Towns’. Phoenix Property Investors acquired three shopping centres in Tseung Kwan O (now called the O’South Retail Portfolio) for a total of HKD 3.38 billion last year. In addition, Wang On Group acquired the retail podium of Lake Silver in Ma On Shan for HKD 653 million and more recently, the retail podium of the Parkside in Tseung Kwan O for HKD 780 million.
When assessing the investment potential of these assets, investors are looking not only at the specific characteristics of the target malls but also the neighbourhood’s demographics, including:
- Growth of private residential units which can act as a proxy for population growth and therefore lead to retail demand.
- Growth of private commercial stock which can measure the level of retail competition as well as the availability of potential assets for trading in the market.
- Private commercial stock per residential unit which can measure the relative balance of demand and supply.
- Growth of median household income which can act as a proxy of increase in affordability.
In the table below, I have assessed and ranked the above four indicators for each of the 18 districts in Hong Kong. Looking at the data, there are some districts that possess very attractive neighbourhood characteristics, such as Sai Kung (including Tseung Kwan O), Shatin (including Ma On Shan) and Yuen Long. However, retail demand in these areas is geared towards mass items as implied by the lower rankings in income growth. It shows that the market potential of neighbourhood mall offering daily necessities, mass general retail and F&B in districts with high retail demand.
Notes: 1) Compound Annual Growth Rate (CAGR) between 2008 and 2018
2) Based on end-2018 data
3) Ranking: 1– most attractive; 18 – least attractive
Source: Census and Statistics Department, Rating and Valuation Department, JLL
Of course, it will be risky for investors to make decisions based purely on the above simple analysis. The indicators, however, can be useful to support the underlying investment thesis.
In view of investors’ increasing interest on neighbourhood malls, the Hong Kong research team will be publishing a brief paper on neighbourhood malls during the month of May. Stay tuned!
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