Investors switch from offices to estate malls

PUBLISHED : Wednesday, 11 July, 2012, 12:00am
UPDATED : Wednesday, 11 July, 2012, 12:00am


Hong Kong property investors have shifted their focus from grade A offices and prime retail space to shopping malls in non-core locations in response to rising prices in the city's main commercial centres.

The shift of attention put Sun Hung Kai Properties' Tsuen Wan Shopping Arcade in the sights of investors, agents said.

The developer's executive director Victor Lui Ting said some shops in the arcade had been sold. If the offers were attractive, the developer would continue to sell the remaining stores.

The arcade's floor area is about 105,900 square feet and agents believe it could fetch HK$600 million.

Recent activity in the sector saw a shopping arcade in the nearby Allway Gardens, owned by veteran property investor Tang Shing-bor, sell for a reported HK$500 million last month, agents said; and an investor reportedly submitted an offer of HK$280 million to buy Chinese Estates' retail arcades in its Indi Home project in the same district and about HK$80 million for the parking spaces.

Despite their non-core location, the properties are in demand because of their competitive prices and yields, agents said.

Hang Lung Properties was reported to have sold Laguna Plaza, the shopping mall in Laguna City, Kwun Tong, to investment fund CLSA Capital Partners for more than HK$1.5 billion last week. The buyer could enjoy a rental yield of 4 per cent.

Land Registry data show Wheelock Properties sold Bellagio Mall, the shopping arcade in its Bellagio residential project in Sham Tseng, for HK$280 million in June.

'Prices of grade A offices, street-level shops in major shopping districts and luxury properties have surged to historically high levels,' a director of the investment department at consultants DTZ, Elvin Yau Chun-fat, said.

'As a result, initial rental yields of shops in prime locations are down to 2 per cent, while yields on luxury residential are less than 2 per cent. Industrial properties had offered higher returns, but yields are now down to just 3 per cent - about the same as borrowing costs. So investors are on the look-out for properties offering higher rental yields and with appeal to tourists, and retail properties in residential areas have become their top choice.'

According to Chartersince Realty, the average asking price of an office unit at Lippo Centre in Admiralty is now about HK$20,000 per square foot, while units in Admiralty Centre are letting for HK$18,000 per square foot and rents in the Bank of America Tower have climbed to HK$25,000 per square foot.

'The asking prices of these vendors are high as they are enjoying a high rental return and the vacancy rate is low. They are reluctant to sell their units unless the offers are attractive,' Chartersince Realty associate director Desmond Poon said.

'There are not many office units available for sale in the market. At the same time, investors worry the office rents will fall and hesitate to buy office units at this level.'

Shopping arcades in non-core locations are more attractive to investors, as they offer rental yields of 4 to 5 per cent, said Kent Fong Chi-kit, co-head of investment at realtor Cushman & Wakefield. 'Many investors and investment funds are cash rich and looking for investment to hedge the inflation,' he said.

Buyers were confident that if they renovated the properties and improved their tenant mix, the shopping arcades would generate good rental returns. 'The prices of the shopping arcades are still at a reasonable level,' Fong said.

En-bloc industrial buildings were popular with investors until recently, said Fong, but only a few deals had been done in the past few months because the government had imposed a higher land premium on converting industrial sites to office use.

'You have to pay about HK$3,000 per square foot for a conversion. Including a land price of HK$2,000 per square foot and a construction cost of HK$2,000 per square foot, the development cost could reach HK$7,000 per square foot. Investors felt they could not make a profit from such a development,' he said.