Hang Lung Properties expert slams plans to turn malls into entertainment hubs
Originally published at the South China Morning Post on December 2, 2015.
To combat growing competition and declining retail sales, some experts say that shopping malls must become entertainment complexes. The chairman of Hong Kong-listed Hang Lung Properties argues that this is unprofitable.
China’s economy is slowing down, as well as its retail sector. As shopping centres struggle to deal with a glut in the market and rising competition from e-commerce players, property experts say that malls need to transition to become a social place for consumers rather than just a space for commerce in order to survive.
“The function of the shopping mall has changed, and the boundary between commerce and living has been blurred,” said Cathy Hau, executive director of Citic Capital. “(Malls have) become an extension of your living place.”
In China, more shopping centres are increasing the scope of entertainment and food and beverage areas in an attempt to boost traffic and retention in their facilities. The percentage of food and beverage in malls have increased dramatically, by “at least” 30 per cent, said Christine Lam, executive director of architecture and design firm Aedas.
In the third quarter of this year, economic growth in the mainland fell to 6.9 per cent - the lowest rate since the financial crisis. According to statistics from Wind Financial, 60 per cent of the 26 listed Chinese department store operators also reported a year-on-year decline in profit, with several referencing “weakening macro conditions” and logging net losses.
Despite the downturn, Ronnie Chan, chairman of Hang Lung Properties, argued against the model and said that a transition towards more “experiential” malls would mean a loss in profits. Malls can be built and marketed in a way that does not prioritise entertainment, he said.
“Whenever I hear that, I’m very sad,” Chan said, adding that it’s important to think about the shareholders’ interests. “Restaurants don’t pay rent … or high rent. Those are low return leaders in terms of driving traffic.”
Although Chan knows properties that have an entertainment make-up of close to 70 per cent, he emphasised that Hang Lung properties in the mainland do not follow this trend, although they may include cinemas on the upper floors to drive traffic. Restaurants only account for about 17 per cent in Shanghai’s Plaza 66, he said.
Regarding the issue of oversupply in the market, Chan said that most of the malls in China are low quality and thus there are still ample opportunities for developers.
“There’s only five players that know how to do really good quality, four star or five star shopping malls in China,” Chan said. “If you build one of those, you’ll be fine.”