Property management: mall in Hong Kong
31 October 2014
Two case studies from Hong Kong show how property strategy and well-qualified property managers can contribute to a successful mall, wherever it is in the world
Cash-rich shoppers from the People's Republic of China (PRC) are shaping the strategies of mall developers in Hong Kong, and expanding opportunities on the mainland. Most developers have identified visitors from the mainland as the source of growth in their malls. Extensive research has been conducted to identify the needs of this group in order to create the right mix of tenants. Opening hours, languages, payment methods, choices of food and beverage, transportation and product deliveries have been introduced to many local shopping malls, creating a shopping experience more tailored for mainland visitors.
Maureen Fung, General Manager of Leasing at Sun Hung Kai Properties (SHKP) and Chairman of the Institute of Shopping Centre Management in Hong Kong, believes that managing a shopping mall portfolio is no different from managing a group of companies. But because a shopping mall is a physical asset, it is vitally important for industry practitioners to also understand the principles of real estate management.
Chain retailers are willing to pay a premium because they are generally backed by private equity funding, publicly listed companies or multi-national conglomerates. Taking the traditional rental income maximisation approach, it would be easy to create a number of identical shopping malls with the same portfolio of retailers.
Decentralised management allows each mall to develop its own tenancy mix, which can better meet the demands of its community and visitors
SHKP takes an approach of aligning its interests with the tenants' by charging rents based on the sales turnover of each of its shops. Decentralised management allows each mall to develop its own tenancy mix, which can better meet the demands of its community and visitors.
In the case of one mall, aimed at younger, highly fashion-conscious shoppers, instead of making sales pitches to chain retailers, SHKP built a multi-million dollar exhibition site, inviting targeted retailers that carried relevant products. Rather than looking simply to maximise rental income, the objective was to create a trade mix that would appeal to the younger generation. Local residents were also consulted on what they would hope to see in this new mall.
Hundreds of thousands of transactions are captured on the SHKP database of retail activity every day. Leasing approval is based not only on the basic rental income or brand prestige from potential new tenants, but also on whether the products would have a good chance of being welcomed by the shoppers, based on the consumer behavioural data. Population demographics are also significant, for example ageing, in deciding how to meet the needs of a changing customer cohort.
Meeting market needs
In Hong Kong, travel permits introduced in China in 2003 created a new challenge. Clearly this would be an opportunity for retailers, but there were many questions. Where would the shoppers come from and how would they get across the border? What products would be welcomed by these visitors and what services would they need for a friendly shopping experience? How should the tenants be prepared? What kind of food would appeal to them? What would be the main reason for coming across the border? SHKP approached these questions via extensive market research.
The logistics of travel was a hurdle that discouraged interest and research clearly indicated that organised shopping tours would be an appealing prospect. Therefore, identifying property close to the border with plenty of parking space for passenger coaches was essential to serve this market, and Taipo was the obvious choice. Back up services such as the promotion of Unionpay systems (the only domestic bank card in the PRC) to tenants was also needed, as were money exchange facilities, setting opening hours to cater for early arrivals and the hiring of Putonghua-speaking ambassadors.
Broader skills sets
SHKP is also involved in mainland China with its upmarket flagships, Shanghai IFC Mall and iAPM Mall, both parts of retail-office-residential projects. There, according to Fung, the most significant difficulty has been the lack of qualified personnel. Malls have to be developed from scratch, with the project team not only having to deal with the customer service and the marketing of the property, but also the physical asset management, valuation of properties, facilities management contract and leasing management as well as talent development (see Property Journal, July/August, p20-22).
"These are core competent skill sets I look for when I hired my senior executives, in addition to their track record in marketing and promotions," says Fung. "Take myself, for example; I hold a marketing degree, but since I started working for SHKP, it was clear to me that I am in the real estate industry, and if I wanted a career in this field, I ought to gain a solid understanding of property development, transaction, management and valuation. That’s why I took time to earn my Masters degree in real estate management and then subsequently my Chartered Surveyor qualification with RICS. The chief executive I appointed for Shanghai IFC is also a surveyor."
Sino Group is another Hong Kong property developer benefiting from the record number of visitors to Hong Kong. According to the Census & Statistics Department in 2013, the value of total retail sales in Hong Kong was $494.5bn, increased by 11% in value and 10.6% in volume over 2012, thanks to a record 54 million visitors from around the world, 72% of those from mainland China.
Its property portfolio encompasses residential properties, offices, industrial buildings and shopping malls and the group has developed more than 200 projects in Hong Kong, China and Singapore, The group manages around 5 million sq ft of retail space in Hong Kong. Its aim with malls is to maintain long-term relationships through a tenant service programme supplying advice regarding shop location, in-store decoration, customer services, range of merchandise and promotional activities.
With lucrative business potential, developers have become more willing to invest in enhancing the shopping experience, which has led to increased domestic consumption as well. Shopping malls are rebranding themselves to attract local residents. With more local retail outlets, transport expenses are reducing, helping to boost personal consumption in shopping, dining, entertainment and leisure.
Ronnie Chan, Sino Group General Manager (Leasing), says:
"We work in partnership with our tenants. When we approach them, we will have already prepared an analysis of where the shop location should be in accordance to shoppers' buying behaviour, what kind of decoration would best appeal to their target customers, which lines of merchandise they should display to reap the maximum return on investment, and how could they manage sales operations efficiently to improve their bottom line."
A team of designers works closely with them on planning, decoration, lighting, window display to align with the overall appearance and ambience of the mall.
With lucrative business potential, developers have become more willing to invest in enhancing the shopping experience...
Good customer service also pays dividends; concierges of flagship stores provide a milk heating service so that parents do not need to rush home to feed their babies. Mobile phone charging services have become commonplace, and some malls even help customers to send local faxes and emails. All of these services help to improve dwell time within the malls.
Apart from the qualitative feedback, Sino collects other quantitative data such as sales receipts, visitor traffic and media reports, which can be analysed into meaningful property strategies. For example, according to Sino's visitor survey, only 70% of shoppers would move on from the ground floor to the first floor, with a further loss of footfall for subsequent floors. In order to boost visitor traffic on the higher floors, flyover escalators have been introduced where shoppers can ride up 2 floors, which has proved successful in improving custom in these areas.
Mall spaces are often leased as venues for art exhibitions and community service activities. In April to June 2012, Sino Art hosted the Transformation of the Qipao cultural exhibition at its Olympian City 2 mall to promote the unique legacy of this traditional Chinese costume, with a display of vintage dresses, free workshops for children and celebrity talks arranged to attract shoppers from outside the district. Chan says:
"As a shopping mall, we see this exhibition as a way of leveraging on our group's core business, which is essentially spatial and asset management, to add value to the community. It was a pleasant surprise, however, to see a surge in visitor traffic from groups of customers we would not normally have access to."
Chan adds that a shopping mall manager needs to handle different management functions. Most academic institutions offer courses on subjects such as marketing promotion, mall positioning and tenancy lease management. Like Fung at SHKP, she sees that because shopping malls are physical assets a qualified shopping mall manager should also be knowledgeable enough in communicating ideas on planning and development, facilities management, asset valuation and building safety to the contractors and in-house property departments. On completion of the property, the manager should be at the forefront to work with the leasing division to allocate tenant mix and design category ratio according to community profile.