HONG KONG: Malls that serve consumers’ daily needs are outperforming luxury malls and are catching the eye of  investors, new research shows.

According to data from property consultants, including Savills, Jones Lang LaSalle, and CBRE Group, reported by Bloomberg, the economic downturn that has hit luxury retailers has redirected investment.

Hong Kong’s biggest mall purchase, made this year by Gaw Capital leading a group including Goldman Sachs, was the $2.9bn acquisition of 17 centres built beneath public housing estates.

An advantage of these malls is that residents living above must often walk through them in order to reach their homes, guaranteeing footfall. The phenomenon, Bloomberg says, is quite unique to Hong Kong’s dense metropolis.

Though most of the retailers based in these centres are local or family run, some larger brands are installing themselves with a view to weathering the economic climate, as larger malls suffer from the threat of changing fashions and e-commerce. Brands such as Uniqlo and Puma have moved in to some regional malls.

Speaking to the news service, Goodwin Gaw, chairman of the private equity company of the same name, noted the threat that e-commerce poses to traditional retail. However, these malls “are community centers and an asset class that doesn’t exist anywhere else in the world, where you have podiums with 30,000 people living above them.”

In recent years, retail sales in Hong Kong have fallen more than 11% and rent data from Jones LaSalle illustrate how the market is changing. Base rents for second-tier malls have grown 0.2%, while prime area malls have seen rents fall by 1.6% in the same period.

“Necessity-shopping is pretty much bullet-proof during a downturn, it’s the discretionary spending and luxury that get hit the hardest”, said Simon Smith, senior director research for APAC at Savills.

However, the move is an insulation from danger rather than a large profit-making opportunity. “These are low-beta shopping malls,” explained Cusson Leung, managing director and head of Hong Kong property and conglomerates research at JPMorgan.

“When the retail market isn’t doing too well,” Leung said, “they won’t do too poorly because they sell lower level stuff or necessities. In an upswing there isn’t as much upside for the landlords.”

Meanwhile, in mainland China, the growth in the number of megacities with populations of more than 10 million, have seen US-style out-of-town malls find an eager and affluent market – though for many of the brands, the real attraction to consumers is the offer of 30 to 70% discounts.

Sourced from Bloomberg, WARC; additional content by WARC staff