Malls get an extreme makeover
The Link Reit is spending big to boost the value of its assets but will its outlay be matched by public estate spending power?
With three of the Link Reit's shopping malls in public housing estates going head to head with their rivals at private shopping centres, it is time for an extreme makeover.
Colourful light fixtures, higher-than-usual ceilings and the latest in toilet facilities are just part of the trust's efforts to enhance its assets and boost the value of the reit.
The effort seems to be paying off with a better tenant mix - and property consultants say the makeovers are a good start - but whether it will be enough to get public housing tenants to spend their money there, only time will tell.
Meanwhile, the speed of the renovations - the makeover is at just three of the reit's 151 malls - has raised concerns the investment trust may be too slow to realise its rental growth potential.
Another hidden factor is latent political pressure that could come to bear if existing tenants at the Link's properties are kicked out.
As at the end of this month, renovation for the three shopping malls - Tsz Wan Shan Shopping Centre in Wong Tai Sin, Lung Cheung, also in Wong Tai Sin, together with Hau Tak Mall in Tseung Kwan O - will be complete.
'Traffic flow has jumped more than 60 per cent since the Tsz Wan Shan Shopping Centre was revamped in December last year,' said Helena Chan, leasing and control manager of Link Reit.
However, a senior executive of a private mall operator said that spending power at the malls would decide much of the success at the reit's assets.
Completed in 1997, the Tsz Wan Shan Shopping Centre, with a total gross floor area of 385,254 square feet, is the first mall to undergo the Link Reit makeover.
The company has turned the 64,000 square foot shopping space at the mall, vacant for more than a year after Jusco moved out, over to fashion and health shops as well as specialty restaurants. And it successfully attracted tenants such as fashion retailers Baleno, Uright, Walker Shop and the Chinese medicine firm Wai Yuen Tong Medicine, to the public housing mall.
Property consultants say that while it is a good sign that major chain retailers have been attracted to the malls, the big unknown is whether it can fill its remaining malls in the same way.
'It is easier for them to get tenants for the first few malls as some retailers want to test the market,' said the senior executive.
'The company has established a very experienced and strong leasing team, which mainly comes from Sun Hung Kai Properties. They established a close relationship with many retail clients when they were in the property company.
'But will such relationships help them to find sufficient clients for the rest of the malls? Tenants will only think that if they know they can make money in the mall.
'An ageing population and the consumption power of housing estate households, in general, are the key concerns, even though we see some well-offs living in public housing estates,' the senior executive said, adding that marketing campaigns are critical to the success of the malls where it is offering one hour's free parking for every two purchased.
The Link Reit maintains it is still too early to show statistics showing the consumption power at the Tsz Wan San mall.
Centaline (Holdings) chairman Shih Wing-ching, who recently visited the Tsz Wan Shan Shopping Centre, said: 'The hardware has improved. You can tell it has invested quite a lot in it. But is it necessary to renovate the toilet facilities at a public housing estate mall to such a high standard? I personally think it is not.
'They want to show people they have put some effort into making a change. But hardware is not the most important factor for tenants. The most important factor is if tenants can make money in the mall.'
Chan Man-sit, chief of the Wai Yuen Tong shop at Tsz Wan San Shopping Centre, said the sales results so far were better than expected and the company had decided to open another mall in Lung Cheung mall.
'One important key to the success of a shopping mall is the size. If a consumer can do their shopping within 10 minutes, no matter what kind of marketing activities the operator provides, it will not be successful,' said Sunny Yam, chairman of Sheraton Valuers.
'This is the advantage of the Link Reit malls, which are on a large scale.
'But what does concern many is the political factor. Under the current political environment, it is not easy for the company to raise rents,' said Mr Yam.
Mr Shih agrees.
'It is a sin if you ask, for example, an old-style bakery to move, making way for modern and franchised bakery to fit the entire tenant mix,' he said.
According to Goldman Sachs, the average rent achieved by the top Link Reit malls was around $30 per square foot per month, or $1 above the $29 per sq ft recorded in July last year.
'We believe this moderate rental enhancement would disappoint those investors who have been looking for fast rental growth in the first one to two years after the initial public offering,' according to its report.