Shopping mall landlords subdivide outlets to find buyers

Poor occupancy rates and falling rents at some shopping centres force landlords to sell smaller units, but there can be pitfalls for investors

PUBLISHED : Wednesday, 17 July, 2013, 12:00am
UPDATED : Wednesday, 17 July, 2013, 4:09am

Weakening sentiment in the retail property market has prompted some landlords to subdivide their shopping malls in a bid to find buyers. They hope the smaller, cheaper shops will draw interest.

In July last year, CCT Telecom Holdings bought 40,000 square feet of vacant retail space in the basement of Blocks 1 to 3 of City Garden in North Point for HK$159.8 million.

After converting the space, now known as Maxi Base, into 336 units ranging in size from 34 sq ft to 184 sq ft, it began selling the shops yesterday at asking prices ranging from HK$896,000 to HK$3.86 million, or HK$17,231 to HK$35,127 per sq ft.

Carmon Yeung, sales director at commercial property agency Midland IC&I, said the landlord would guarantee buyers a net rental yield of 5 per cent for the first two years.

The seller would also give buyers a rebate of 50 per cent of the doubled stamp duty due on their investment. Buyers would have to pay a monthly management and promotion fee, though the amount has yet to be confirmed even though marketing of the shop has begun.

Yeung said Nanyang Commercial Bank would offer investors 40 per cent mortgage loans for 15-year terms, and they would be charged an interest rate of up to 2.5 per cent below the prime lending rate, which is currently 5 per cent. "The landlord will help buyers find tenants and guarantee the rental yield for two years. I don't think there will be a problem with re-leasing the units in two years' time," he said.

However, lawmaker James To Kun-sun urged investors in such subdivided properties to check conditions and additional costs before they buy, since some malls are suffering from poor occupancy rates and falling rents.

"Many buyers have complained that management charges and promotion fees are not reasonable. And they also discovered after they bought the units that they are not able to terminate management contracts after the contract for the first two years expired.

"The Building Management Ordinance [which covers such matters] does not apply to this kind of property and so investors had to suffer until they found another buyer for their properties," he said. In some cases, To added, landlords had undertaken to package the mall with a theme or said they were negotiating to secure well-known brands such as McDonald's as anchor tenants in order to attract shoppers to the mall. But in the end nothing came of that.

To also said buyers might find that if the shopping mall did not succeed in attracting shoppers, it would be difficult for individual owners to team up and agree on a promotion campaign after the rental guarantee period ended.

Lawrence Wong, a director at estate agency Sheraton, warned that controlling the tenant mix in a subdivided mall was difficult.

"Unit owners may not be able to find tenants, and if investors are really interested in buying this kind of property they should rather consider buying an outlet located in a prime area of a mall in a prime location," he said.