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The value of neighbourhood retail

2 July 2018

Luxury retail in high street shops and in high-end malls gets a lot of attention, but neighbourhood shopping centres offer advantages investors should not ignore.

Fortune REIT’s portfolio consists of retail properties situated on private housing estates in Hong Kong, with approximately 70% of gross floor area rented to tenants in the non-discretionary sector, such as supermarkets, F&B and education.

Among different types of commercial assets, Hong Kong neighbourhood retail has been proven to be more resilient through economic ups and downs. For example, even when Hong Kong retail sales experienced a three-year contraction during 2014 to 2016 which saw luxury malls and high street retail suffering increases in vacancy and falls in rents as Mainland visitor numbers declined. Fortune REIT’s portfolio of neighbourhood malls was still able to sustain a double-digit rental reversion and high occupancy during the period, on the back of strong employment and rising household incomes.

The growth of e-commerce is undoubtedly a big trend and is challenging traditional business models, however Hong Kong’s retail sector has so far escaped much of the disruption seen elsewhere. A large part of this is attributed to Hong Kong’s tiny living space, which encourages people to spend leisure time outside their homes, often in malls.

This is not to say that e-commerce has not disrupted the local market. Shopping malls nowadays tend to compete more in term of the experience they offer, such as entertainment and F&B, to attract patrons. Keeping our malls relevant to the current customer taste and demographic changes has been a key to Fortune Malls’ success as we always strive to upgrade our malls, both physically and in term of tenant mix.

To make Fortune Malls more happening places, we have enhanced F&B offerings where possible, regularly host exciting promotions and events to drive footfall and engage shoppers through social media. In addition, we have carried out major asset enhancement initiatives (AEIs) in five Fortune Malls over the past seven years to upgrade the shopping ambiance.

AEIs, acquisition and active leasing management will continue to be our three core strategies, which has helped to drive 14 consecutive years of growth for Fortune REIT.