Why private equity firms have been snapping up Hong Kong's local malls

By Lam Ka-sing kasing.lam@scmp.com / https://www.scmp.com/property/hong-kong-china/article/3015907/hong-kongs-local-malls-seen-solid-investment-bet-thanks?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | July 2, 2019 11:51 AM SGT
Hong Kong's neighbourhood shopping centres have come into focus recently for their solid rental yields and reliance on local consumers, in contrast to glitzier malls that cater to the more fickle tourist spending.
Property broker JLL estimated that market yields for neighbourhood malls ranged between 3 and 4.5 per cent, well above the city's high street shops at 2.5 per cent and grade A offices at 2.7 per cent.
"Neighbourhood malls in Hong Kong are an attractive retail asset worth considering for long-term investment due to stability, increased reliance on domestic consumers and relatively higher yields compared to other real ­estate classes." said Denis Ma, head of research at JLL.
He said the trend would continue as neighbourhood shopping centres typically provided a yield higher than other real estate asset classes.
Investors and funds have channelled HK$63 billion (US$8.07 billion) into ­acquiring neighbourhood malls since 2009, accounting for 63 per cent of total investment, according to JLL.
An aerial view of residential and commercial buildings near Prince Edward, in Mong Kok district. Photo: Martin Chan alt=An aerial view of residential and commercial buildings near Prince Edward, in Mong Kok district. Photo: Martin Chan
Ma said domestic spending was much more resilient than tourist spending thanks to Hong Kong's consistently low unemployment rate and stable growth in disposable income.
"For example, back in 2009 following the global financial crisis, retail sales in supermarkets grew by 3.4 per cent for the year, a strong performance compared with discretionary categories such as clothing and footwear, which declined by 0.8 per cent," he said.
JLL said that Sha Tin, Sham Shui Po, Tuen Mun and Tseung Kwan O ranked as the four districts with the highest investment potential for neighbourhood shopping centres.
In December last year Link Reit sold 12 retail podiums to a consortium led by private equity fund Gaw Capital Partners for HK$12 billion. Investment fund Blackstone and investment bank Goldman Sachs were also partners in the deal.
"We find this sector to be defensive," said a Gaw...