Shopping centres bagged more than HK$1 billion in 2Q14

Giving clues to the retail investment trend.

The latest sales transactions of shopping centres fetched more than HK$1 billion which provides some clues as to the retail investment trend.

According to a research and forecast report from Colliers International on 2Q 2014, for example, E Plaza - Legend Tower in Kwun Tong, covering a total floor area of about 61,000 sq ft, sold for HK$1.08 billion with an initial yield of 2.7%.

Despite the fact that the shopping mall is in a decentralised location, the yield is merely 20 basis points above the overall retail yield of 2.5% published by the Rating and Valuation Department.

The sale of five shopping centres by Link REIT has also caught the market’s attention.

The transactions involved community malls in sizes ranging from 6,000 sq ft to 40,000 sq ft, situated in residential areas such as Lam Tin and Kwai Chung.

Although these malls are not located in traditional shopping districts, the sale was well received and attracted a number of investors looking for long-term options.

Transacted prices were above market estimates, with an initial yield of 3-4%, which is 100-380 basis points below Link REIT's estimation conducted last year.

Here's more from Colliers International:

This reflects growing enthusiasm among investors in regards to decentralised shops and malls.

Prospective buyers are inclined to be more conservative in pricing, typically attached with a risk premium at 250 basis points as a starting point.

However, recent transactions suggest a trend of falling risk premiums.

Considering the slowing pace of growth, or even a decline in mainland tourist arrivals, we believe the rental upward cycle for key shopping areas has already reached its peak.

The prevailing low interest rate environment will remain over the next 12 months, but the ultra-low interest rate situation is predicted to come to an end in the second half of next year.

This has made prospective buyers adopt a conservative approach.

Apart from their focus on core districts, the market has witnessed growing interest of investors in decentralised malls, especially those with existing leases, which adds to their appeal as investors can enjoy better returns in the short- to medium-term future.