Hysan Development, one of the largest commercial landlords in Causeway Bay, reported underlying profit rose 5.5 per cent last year but warned challenges lie ahead as a downturn in retailing is likely to continue. The developer, which owns 4.1 million square feet of retail, office and residential investment properties in Hong Kong, announced core profit, excluding the revaluation gain on investment properties, amounted to HK$2.28 billion for the year to December. “This year will see continued adjustments, particularly in the high-end retail sector, while volatility in the currency and equity markets and slower China growth will contribute to a challenging year,” Hysan chairman Irene Lee Yun-lien said in a filing to the Hong Kong stock exchange on Tuesday. Turnover from its retail portfolio including Hysan Place, Lee Gardens and Lee Theatre in the Causeway Bay shopping district rose 6.4 per cent to HK$3.43 billion. The retail segment contributed 56 per cent of the group’s overall turnover. The result was at the low end of market forecasts of 5 per cent to 10 per cent growth. Hysan said the rise in profit principally reflected higher average occupancy and positive rental reversion. Its retail portfolio has achieved rental renewal, reviews and new lettings with average increase of about 25 per cent last year. Except residential rental, Hysan recorded growth for its retail and office spaces. Gross office rentals saw a year-on-year 9.4 per cent increase to HK$1.24 billion, while retail rentals edged up 5.6 per cent from 2014 to HK$1.9 billion last year. However, residential rentals totalled HK$285 million, a drop of 0.7 per cent from 2014, as a number of units were vacant amid renovation work being carried out in one tower at Bamboo Grove on Kennedy Road. “Our office portfolio continued to benefit from the significant demand for premium office spaces by financial and related industries in Hong Kong,” she said. While mainland securities and financial companies continued to take up the available limited supply of space in the core Central district, she said other industries have looked towards Causeway Bay, and Lee Gardens in particular, as a strong alternative for corporates. She said Hysan has diversified its retail portfolio towards the mid-to-affordable market after witnessing slower sales in the luxury retail sector last year. Tenant sales at its retail portfolio rose close to 10 per cent last year, outperforming a 3.7 per cent decline in the overall retail sales of Hong Kong as the city suffered slower growth in tourist arrivals and weaker spending, Hysan said. The Lee Garden Three, formerly known as Sunning redevelopment project, is on target for completion in late 2017, slightly earlier than the scheduled completion date of 2018, Hysan said. An additional 200 parking spaces will be added to the project, which will help channel more vehicle owners into its shopping malls, Hysan said. Net profit plunged 40.8 per cent to HK$2.9 billion due to a smaller fair value gain on the group’s investment properties. Last year, revaluation gains on investment properties amounted to HK$695 million, compared HK$2.94 billion in 2014. The company’s shares closed up 0.6 per cent at HK$33.7 on Tuesday. It said it plans to pay a final dividend of HK$1.07 per share, up 7 per cent from HK$1 a year earlier.