"The world has changed", high-end malls or optimal assets?
China, one of the most prosperous countries in the world for commercial real estate. Under the epidemic, this momentum, which is still continuing, has changed. A long-term perspective is needed to observe the weathervane trends in the commercial real estate sector and to think about the way forward
"It is truly amazing how much the world has changed." Recently, Hang Lung Group Chairman Chen Qizong's 10,000-word "Letter to Shareholders" caught fire across the internet.
In Chan Kai Chung's view, the global political and economic landscape will fundamentally change, and these effects will last for decades. China A will be greatly affected, and so will Hang Lung.
But despite the changes, Hang Lung has managed to perform well, "even to the surprise of many people". The surprise is that the high-end mall is still the king of resistance.
In 2021, high-end shopping malls are the most cycle-resistant asset type, with high traffic rebound and fast retail sales growth. By the first half of 2022, many headline cities were repeatedly affected by the epidemic, but high-end malls once again passed this stress test.
According to CITIC Securities, 69% of the more than 200 luxury brand boutiques opened in malls owned by the top 10 commercial real estate companies, and 50% opened in the yards of China Resources Land (Vientiane), Hang Lung Properties, SKP, Wharf and Swire Properties.
Therefore, using the above five star commercial real estate companies as a sample for the study, a meso cross-section can be made with micro projects and performance between them, dynamically presenting the changes and constants experienced by high-end shopping malls in China today.
China Resources : eye-catching retail sales restoration power in heavy luxury shopping centres
In the first half of 2022, China Resources Land's shopping centre rental income was RMB6.2 billion, up 14.2% year-on-year excluding the impact of rent reduction, and same shop growth was up 6.8% year-on-year excluding the impact of rent reduction. During the same period, retail sales of shopping centres increased by 7% over last year to RMB54.1 billion, significantly outperforming the market average; the overall occupancy rate was 96.4%, maintaining a high level in the industry.
In particular, heavy luxury shopping centres performed the best, with same-store retail sales in CR Land's shopping centres increasing significantly year-on-year from May 2022 onwards, and the trend of retail sales recovery in heavy luxury shopping centres was more pronounced, as was the performance of customer traffic.
A review of traffic in CR Land's malls from January 2021 to June 2022 shows that in the first quarter of the year, CR Land's heavy luxury malls fell by 17.7%, higher than non-heavy luxury malls; by the second quarter, traffic in heavy luxury malls rose by 35% year-on-year, much higher than the 21.3% in non-heavy luxury malls.
As a leader in high-end shopping mall scale, China Resources Land has opened a total of nine heavy luxury shopping centres, which are geographically dispersed and not concentrated in the cities most affected by the epidemic in the first half of the year. On the other hand, the three new luxury shopping centres in Wuhan, Fuzhou and Haikou in the first half of this year (the ground floor brands in Haikou Vientiane City and Wuhan Vientiane City are not yet located there) are also far away from the centre of the epidemic storm, and their stable operation has brought good incremental results.
It is planned that by 2025, CR Land will have around 13-15 heavy luxury shopping centres under its umbrella. Once these projects are in place in turn, they will bring higher and more stable growth for CR Land.
Hang Lung: half-year sales down 30%, heavy luxury malls still the mainstay
The second largest number of heavy luxury malls currently in operation is Hang Lung, which is heavily betting on the Magic City, and its half-year performance was deeply affected by the epidemic.
In the first half of 2022, the leasing revenue of Hang Lung Properties and Hang Lung Group's mainland operations was RMB2.784 billion and RMB2.983 billion respectively, both up 1%. Sales at Plaza 66 in Shanghai plunged 38% and leasing income dropped 17% due to the two-month closure of Shanghai from late March to May, while sales at Grand Gateway 66 in Shanghai plunged 32% and leasing income fell only slightly by 2%.
Although sales and leasing income have seen a decline, the 2 "shop kings" of Hang Lung in the Magic City are still the mainstay of Hang Lung's income.
In this regard, Hang Lung explained that "the completion of the mall's asset optimization plan by the end of 2020 has resulted in an improved tenant mix, with more quality tenants bringing in higher base rents, making the mall more resilient to the negative impact of the epidemic control measures implemented in Shanghai in April and May on tenant sales."
Another similar with China Resources Land, high-end mall "multi-point flowering" layout strategy, become the first half of the Hang Lung stable performance of the key.
During the reporting period, Hang Lung Group's high-end shopping malls outside Shanghai and Shenyang recorded revenue increases ranging from 7% to 184% compared to the same period last year, with the revenue of Plaza 66 in Kunming and Plaza 66 in Wuhan increasing by 11% and 184% respectively, which partially mitigated the negative impact brought by the epidemic in Shanghai.
TAIKOO : Half-year sales decline across Mainland malls, but rental income rises by 3%
TAIKOO Properties is second only to Hang Lung in terms of volume in the number of high-end malls it owns.
The first half of the year saw a concentrated outbreak in Beijing and Shanghai. As a result, sales at Swire's mainland malls all fell (Taikoo Li Qian Tan in Shanghai opens in September 2021, no comparative figures available).
Despite an across-the-board decline in mall sales, Swire's rental income from investment properties in Mainland China bucked the trend by 3% year-on-year to HK$1,784 million. Swire Properties said this increase was mainly due to the revenue contribution from the full operation of Taikoo Li Sanlitun West and the strong performance of the retail market in Mainland China in the first quarter before the outbreak this year.
Taikoo Li Sanlitun in Beijing, which only resumed dine-in and offline retailing on 19 June, reported a 26% decline in sales for the period, but an increase in rental income, mainly due to increased rental income from the West End, which officially opened in December last year, and the continued transformation of the project to a high-end location in recent years, which has optimised the tenant mix.
The strong operational voice of Swire is evident in the fact that in the more mature core projects, rental income was flat or even increased, even though sales were down.
It is worth noting that, unlike Hang Lung, Swire's projects outside Shanghai and Beijing failed to act well as pressure reducing valves. During the period, sales at TaiKoo Hui in Guangzhou fell by 6.9% and rental income was 2% lower than the previous year, while zero sales at TaiKoo Li in Chengdu fell by 8.2% and rental income was little different from the same period the previous year.
In terms of strategic planning for the latter part of the year, Swire Properties Chairman Bradley said that 50% of the HK$100 billion investment plan for the next ten years would be invested in Mainland China, with new projects to be planned in a number of core markets, with the aim of achieving mid-single digit dividend growth each year.
Wharf Group: Operating profit steady, IFS still able to hit
In a sluggish environment, Wharf's performance in the Mainland was expected. Despite the decline in mall rental income, operating profit remained stable, recording HK$1,788 million, a result backed by the stable operational strength of IFS projects in the Mainland.
The persistent resistance to the epidemic has affected the upward growth of IFS Chengdu and IFS Changsha though.
But there is no denying that Chengdu IFS is still the current king of the mainland commercial real estate scene. Data disclosed by the Sichuan Chain Business Association shows that in 2021, Chengdu IFS will have commercial sales of 10 billion yuan, with nearly 62% of Chengdu IFS's volume of over 200,000 square metres in retail, slightly higher than that of Taiyang Taikoo Li in Chengdu (56.43%).
IFS Changsha, on the other hand, is a fast-rising star in the commercial jungle, and has shown progressively better results as it enters a period of mature operation.
In 2019, revenue of HK$810 million and operating profit of HK$325 million were reported for the period. By the first half of 2021, IFS Changsha recorded another year-on-year increase in revenue and operating profit, with growth rates of 90% and 122% respectively, and an occupancy rate of 98%.
Looking forward, Wharf is able to hold on to this golden sign of IFS and it can still live quite well.
SKP: "King of shops around the world" reopens with three-day sales of over 100 million, money-sucking power online
In May 2022, work-from-home offices were introduced in some areas of Beijing to reduce the space for the spread of the virus. Since May 29, a number of malls such as China World Mall, Yi Di Gang, Blue Harbour Bay, Lufthansa Outlets and Taikoo Li Sanlitun have resumed operations.
Data monitoring from some key shopping malls showed that patronage in the malls that resumed operations on May 29, 30 and 31 was stable, at around one-third of the daily patronage for the same period, and sales resumed at around 40% of normal daily sales. Within three days, SKP's customer traffic and sales were nearly 50% restored, with sales of around RMB100 million. This shows that SKP is the "king of shops worldwide".
SKP has only opened 2 shopping malls so far, but it has already officially announced its location in cities such as Kunming, Chengdu, Guiyang, Hohhot, Hangzhou, Wuhan and Guangzhou, and predicts that it can complete its plan of about 7-10 shops by 2025.
Play back the top five companies above, it is not difficult to see a correlation anti-fragile characteristics shown on them - sales plummeted, but rental income stabilised. Behind here, the scale of upscale mall operations and the high increase in geographical penetration and latest projects are crucial.
Naturally, it is also essential for such high-powered players to carry out seasonal adjustments and changes to the Group's upscale malls in order to enhance the competitiveness of their main business. On the one hand, they can continue to surprise customers in the market, and on the other hand, they can stay ahead of the curve in a dynamically changing market.