Funds take aim at shopping centres

PUBLISHED : Wednesday, 14 March, 2007, 12:00am
UPDATED : Wednesday, 14 March, 2007, 12:00am

Consolidation in the retail market provides an opportunity for institutional investors to boost yields in core areas

The consolidation in the retail investment market last year has not pushed foreign institutional funds away from the sector, but instead has provided them opportunities to buy in busy shopping areas.

Foreign funds, which used to focus on quality office properties in central business districts of Hong Kong, have extended their focus on to retail blocks since the beginning of the year.

In January, Alpha Partners Investment, the property investment fund of Singapore's Keppel Land, bought Mong Kok Computer Centre for HK$750 million, while a property investment unit of Merrill Lynch acquired Golden Plaza, also in Mong Kok, for HK$530 million earlier this month. Golden Plaza offers services catering to weddings.

DTZ Debenham Tie Leung investment department director Kent Fong Chi-kit said foreign investment funds had been looking for retail properties in Hong Kong for a long time. 'The problem is quality shopping centres are owned by major developers, which hold the properties for long-term investment and have no plans to sell,' he said.

In the retail investment market, the smaller complexes are usually dominated by local investors.

However, the failure in sales of subdivided shopping centres since the beginning of last year and the slowdown in retail rental growth have forced some local investors out of the market.

According to Colliers International, transactions in retail property worth more than HK$30 million dropped 52 per cent to 102 last year.

Helen Mak, a senior manager with the retail service group at Colliers International, said that the consolidation in the retail investment market had provided an opportunity for foreign investment funds to buy shopping centres in core shopping areas at reasonable prices and gave them more bargaining power.

According to property agents, Mong Kok Computer Centre provides a rental yield of 5 per cent.

A source said the investment fund was planning to revamp and subdivide it for higher rental income.

Merrill Lynch will see a rental yield of 5.67 per cent from Golden Plaza, which provides monthly rental income of HK$2.5 million.

A fund source said that investment funds were interested in mature shopping centres in core shopping areas such as Mong Kok.

'The shopping centre must be worth at least HK$500 million and have value-added potential,' he said. 'Although the growth in retail rents slowed last year, leasing activities in shopping centres owned by major developers remain active.

'We see many international brand retailers expanding into Hong Kong.'

The source said that strong retail sales at shopping centres had shown that the buying power of local consumers had been improving.

Ms Mak said that Golden Plaza had upside potential after renovation and upgrading.

'Retail rents on the ground floor of Golden Plaza are HK$200 per square foot, but rents on the upper floors are much lower. Rents could rise significantly after renovation and expansion of the types of wedding services,' she said.

Bruce Walker, a director at Pamfleet (HK), which bought Kowloon City Plaza with Morgan Stanley and Pioneer Global Group, said: 'We are basically involved in a variety of projects such as retail, office and residential. We are looking for projects that have upside potential through repositioning, renovation and upgrading the tenancy.'