Foreign funds line up for push into retail investment

Retail property will be the best pick for investors this year, with foreign funds likely to seek premises to complement investment portfolios.

Colliers Jardine executive director Antonio Wu said foreign funds considered Hong Kong a necessary location for investment.

He expected they would make a first foray into the retail sector this or next year.

'As far as I know, Lend Lease, GRA and Grosvenor have all specified retail properties as one of their prime targets,' Mr Wu said.

In Australia and Singapore, investors with their own retail funds already had established exposure in retail properties, he said.

Mr Wu said the difficulty faced by foreigners was a lack of knowledge of Hong Kong's retail sector. However, increased transactions in the past six months had improved market awareness.

To tap overseas interest, Mr Wu early this week went to Singapore, where many Asia-Pacific property funds are based, to present a retail project - the ground, first and second floors of Mongkok City Centre.

The property - held by the Law family of Bossini International - will be offered for tender, closing on May 30.

It is estimated to be worth between HK$300 million and HK$400 million.

Mr Wu said Mongkok City Centre would prove a good indicator of investment value in Hong Kong's prime retail properties.

Located at 74-84 Sai Yeung Choi Street South, the property has a floor area of 20,493 square feet, with a monthly rental potential of HK$1.8 million.

Since tenancy agreements were due to expire in the period from this year to 2004, and options to renew were provided at pre-set rents, the monthly rental of the whole portfolio was projected to grow gradually to HK$2.19 million by April 2004, Mr Wu said.

The investment yield also would grow from an initial 7.27 per cent to 8.77 per cent, or from 5.45 per cent to 6.58 per cent, depending on the bidding price.

Buyers have the assurance of secured tenants which include Fairwood Fast Food, Hon Wo Korean Restaurant, New World Telephone, Aster Cosmetics, Stereo and Citicall.

Mr Wu said another emerging trend was for wealthy end-users to buy properties in which they utilise the bulk of the space as flagship outlets and let out the balance as an investment.

Giordano International recently bought a shop at Nathan Road, Tsim Sha Tsui, for HK$200 million, while Broadway Photo Supply paid HK$250 million for a Soy Street store in Mongkok.

Mr Wu said end-users were willing to pay large lump-sums because the market downturn since the Asian crisis had created an opportunity for bargains.

The office market could maintain a stable performance at best, in the wake of the slowdown in corporations' expansion, while luxury properties had suffered from devaluation.

Retail properties, however, could benefit from rising consumer spending and improved tourism.

Traditionally, the retail property market had been the last sector to improve following the recovery in office and luxury markets, Mr Wu said.

Foreign funds had not been saturated with Hong Kong properties, but they could move in if the right products became available.

He expected these funds to become active in Hong Kong in the second half of the year, moving into China for opportunities later.