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Kenneth Ko

Sophia Wong

Commercial landlords are moving rapidly to upgrade their retail properties with the aim of boosting returns by restructuring the mix of tenants.

The move has been prompted by an increasingly competitive commercial market and a growing number of landlords are joining the trend.

The latest companies to refurbish their shopping centres include Hysan Development at the Caroline Centre in Causeway Bay, Kowloon Development at the Pioneer Centre in Mongkok and Sino Land at China Hong Kong City in Tsim Sha Tsui.

Hongkong Land expects to complete its renovation of the retail podium of Alexandra House in Central by October and will also add shopping space to its Landmark complex.

Wharf (Holdings) is undertaking a two-phase overhaul of Ocean Terminal in Tsim Sha Tsui to regenerate the ageing shopping centre and turn it into a Lifestyle Concept X megastore aimed at younger customers.

The trend reflects efforts by landlords to compete for tenants and sustain or improve rental returns against a deflationary environment and sluggish sales.

Hysan's chief operating officer, Michael Lee Tze-hau, said the HK$130 million renovation of its three-level retail podium at Caroline Centre began last month. The project was part of the group's long-standing programme to reassess its property portfolio to maximise value and return, he said.

'Caroline Centre, built in 1992, is not an old building at all. The renovation is designed to reposition the retail podium and create a synergy with our neighbouring Lee Gardens, which has a mix of high-end retail tenants,' he said.

Hysan intended to attract some desirable fashion and accessories brands to the lower floors of Caroline Centre. The second floor and part of the third would be reserved for retailers specialising children's products, with the remaining space for upmarket restaurants and coffee shops.

Mr Lee believed that rental revenue achieved from the retail space would be substantially increased after the refurbishment was completed by October.

Hongkong Land executive director Ian Hawksworth said refurbishing retail property was important for the group as a long-term property owner. It was intended to get the best return from assets.

In the past 15 to 20 years, Hongkong Land has been gradually renovating and redeveloping properties.

Mr Hawksworth said the group undertook renovations in response to tenants' needs. Typically, it would result in a gradual increase in income and value.

For instance, it had provided larger shops with big street frontage in its Central portfolio, taking advantage of the strategy in the late 1990s by international luxury fashion and accessories brands in favour of setting up flagship stores.

He said the retail podium of Alexandra House under refurbishment provided 46,000 square feet of lettable area. Seventy-five per cent of the podium had been pre-let.

At least three flagship stores of international brands would be housed at the centre, he said.

Mr Hawksworth said the rental rates for the renovated space were much better. Prime shops were leasing at more than HK$400 per square foot a month.

He also said rental revenue for the retail podium at Prince's Building in Central had increased by 15 per cent to 20 per cent after its refurbishment last year.

The amount of additional shopping space arising from the Landmark refurbishment had not been finalised. Work includes converting part of Edinburgh Tower into a boutique hotel and building an office block.

Despite the difficult retail market, Mr Hawksworth said, rents in the luxury retail sector remained firm or had even improved slightly over the past 12 to 18 months. There was net demand for retail space in Central, and Hongkong Land had a waiting list of would-be tenants, he said.

Kowloon Development executive director Dickson Lai said the company was converting about 10,000 square feet of space at Pioneer Centre from a food court to shops in an effort to generate higher rental income.

He said prospect for restaurants and food and beverage outlets were not optimistic, especially after the outbreak of atypical pneumonia.

'[Pneumonia] has a substantial impact [on the retail business] but nobody knows the extent at this moment,' Mr Lai said.



Upgrades mark push for retail tenants