Hong Kong Retail Property:Decentralized shopping malls are as packed as in prime areas
Our recent property tour to a few decentralized malls in New Territoriesreinforced our positive view on decentralized retail. The average footfall at certainmalls in Tuen Mun is as much as those in prime retail areas like Causeway Bayand Tsimshatsui. Stock picks on decentralized retail are SHKP, Link REIT andFortune REIT.
What is driving the footfall and retail sales in decentralized retail? Webelieve that the change in the consumption pattern of mainland tourists andmore same-day travelers are the key drivers for footfall and retail sales growthin decentralized retail malls. Though the number of visitor arrivals fromMainland China has been on a growing trend, we estimate that on average theyare spending less per person (see Figure 2). Also, more same-day visitors implythere are more day-trip visitors doing same-day shopping near the border.Hence decentralized retail malls in Tuen Mun, Sheung Shui, Shatin, etc cancapture those shoppers.
Footfall comparable to prime retail: Our recent tour to SHKP's V city andSino Land's Tuen Mun Town Plaza found that the average daily footfall of thesemalls is comparable to retail malls in Causeway Bay and Tsimshatsui. Averageweekend footfall at V city and Tuen Mun Town Plaza is around 200K and 380Krespectively, comparable to the level at Harbour City in Tsimshatsui and TimesSquare in Causeway Bay. Other than luxury international brands like Chanel andLouis Vuitton, mass to mid-end brands have a presence in Tuen Mun like Zara,Uniqlo, Lancome, implying the spending power in the decentralized districts.
Upside potential in Fortune Kingswood: After Fortune REIT acquiredKingswood Ginza (renamed at Fortune Kingswood) from Cheung Kong inOctober 2013, the occupancy of the mall has increased to 99% at the end ofDecember 2013. With average rent at HK$27-28 psf and certain anchor tenantsoccupying large space (e.g. Park’n Shop taking up over 10% of gross rentablearea), we believe that there would be meaningful rental uplift after potentialassets enhancement in 2015.