Hong Kong’s retail sector revives: top landlords see positive signs from shop tenants, while office market lags
- Swire Properties says retail sales at some shopping centres are back at pre-pandemic levels, while Hysan Development reports rising tenant revenue
- However, the office market is lagging as high vacancy rates continue
A recovery in the retail property market in Hong Kong is on the right track, but the same cannot be said for the office market amid continued high vacancy rates and economic uncertainty, according to leading landlords Swire Properties and Hysan Development.
Both companies pointed to encouraging signs in the retail market as they reported their first-half financial results on Thursday. Retail sales at some of Swire’s shopping malls, which include Pacific Place in Admiralty and Cityplaza at Taikoo Shing in Quarry Bay, improved to pre-pandemic levels, said CEO Tim Blackburn.
Meanwhile, Hysan, the owner of Hysan Place and Lee Gardens, said retail sales at its properties grew faster than in the overall Hong Kong market, leading to a 67 per cent year on year increase in turnover rent, a percentage of business turnover that tenants pay on top of their base rent. The occupancy rate for the company’s retail portfolio stood at 98 per cent, it said.
“In terms of the overall market we’ve been really encouraged by the recovery of retail malls in Hong Kong over the first six months of this year,” Blackburn said at a media briefing on Thursday afternoon. “We’ve seen strong recovery as tourism and travel has resumed.”
Swire Properties reported a 49 per cent decline in net profit to HK$2.22 billion (US$284 million) for the six months ended June 30, citing valuation losses in its investment properties in Hong Kong and the US.
However, recurring underlying profit increased by HK$220 million to HK$3.9 billion in the first half, the company said, adding that this “mainly reflected higher retail rental income and higher operating profit before depreciation from our hotels in Hong Kong and mainland China”.
Hysan reported HK$190 million in net profit for the six months to June, more than double the HK$71 million posted in the same period in 2022.
Revenue dropped 9.3 per cent to HK$1.61 billion, as its office portfolio fell 7.45 per cent and retail revenue fell 9.9 per cent. However, rental reversion rates on renewals, rent reviews and new lettings were “predominantly positive” during the period, the company said.
Swire’s Blackburn said retail sales increased by 60 per cent, 12 per cent and 62 per cent year on year, respectively, at Pacific Place, Cityplaza and Citygate Outlets.
In contrast to the retail market, Hong Kong’s office market has yet to experience a notable rebound, Hysan said. Although office enquiries increased after the resumption of travel, companies were generally cautious about taking up new space because of global economic uncertainty, resulting in continued high vacancy rates, the company said.
Swire pinned the weak office market on increased availability due to vacancy and new supply, along with subdued demand reflecting continued economic uncertainties.
“The office market [in Hong Kong] remains soft,” Blackburn said. “We haven’t seen significant new demand yet since the opening of the border. Across our portfolio, occupancy has remained resilient.”
Overall office occupancy was 94 per cent as of June 30, Blackburn said, excluding Two Taikoo Place, which was just completed in September last year. That property has a 56 per cent occupancy rate, according to Swire Properties’ interim filing with the Hong Kong stock exchange.
Swire Properties’ overall underlying profit attributable to shareholders fell by HK$268 million or 6 per cent to HK$3.9 billion in the six-month period, which the company blamed primarily on a delay in sales of car parking spaces at the Taikoo Shing residential development in Hong Kong.
The company declared a first interim dividend for 2023 of HK$0.33 per share. This represented an increase of 3 per cent from the first interim dividend paid in 2022.
Swire Properties shares fell 1.3 per cent to HK$18.14 on Thursday in Hong Kong trade. Swire Pacific gained 1.1 per cent to HK$66.75. Hysan Development rose 1.3 per cent to HK$17.78. The broad market was flat.
Additional reporting by Chuqin Jiang
