Link Asset Management based in Hong Kong anticipates that many of its tenants will seek reduced rental rates soon, as the firm focuses on maintaining high occupancy levels for its properties, said senior officials from the management company. Link Reit Asia’s biggest real estate investment fund.
Despite ongoing challenges in the retail sector in Hong Kong, assets in both Singapore and Australia surpassed expectations, according to the company’s statement on Tuesday when they announced increased revenues and profits for the fiscal year ending in March. The possibility of purchasing property in struggling markets such as Hong Kong has not been ruled out yet, noted George Hongchoy Kwok-lung, who serves as an executive director and group CEO.
He stated that there will continue to be significant pressure in the coming year for decreasing rent prices; however, one key focus remains maintaining high occupancy rates. During the fiscal year, the firm experienced a rental rate reversion of negative 2.2 percent in Hong Kong, which refers to instances where renters secure reduced fees at renewal. Conversely, retail properties in Singapore showed a favorable reversion of 17.8 percent.
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Link's profits climbed 4.6 percent to HK$7.02 billion (US$896 million) for the year, with revenues growing 4.8 percent to reach HK$14.22 billion. Additionally, net property income surged by 5.5 percent to hit HK$10.6 billion.
As of March 31, the entire portfolio had a value of HK$226 billion, encompassing over 150 properties across Hong Kong, mainland China, Australia, Singapore, and the United Kingdom. Seventy-five percent of these assets were located in Hong Kong, including retail spaces, parking facilities, and office buildings.
Link possesses 12 properties in mainland China, which constitutes roughly 14 percent of its total holdings, covering areas such as retail, offices, and logistics. Additionally, outside of the country, Link has 12 more properties primarily focused on retail and office spaces.
As of March 31, occupancy for Link’s retail properties in Hong Kong reached 97.8%, having secured over 600 new lease agreements throughout the year. The average monthly rental rate came down slightly to HK$63.30 per square foot by month-end, marking a 1.7% decline compared to the previous year. Their holdings in Hong Kong encompass various locations including shopping centers like Stanley Plaza located in the Southern District and Temple Mall situated in Wong Tai Sin, along with high-value offices within Quayside in Kwun Tong.
The occupancy rate for its retail properties in mainland China was 95.9%, but these experienced a negative reversion of 0.7% because of underperformance at Link Plaza Zhongguancun in Beijing. If you exclude this property, the remaining retail assets in mainland China showed a positive reversion of 7.6%, according to Link.
Within Mainland China, the company holds ownership of properties such as Link Plaza Qibao in Shanghai, Link Plaza Liwan in Guangzhou, and Link CentralWalk in Shenzhen, along with various additional holdings. They also possess office spaces and logistics facilities.
Hongchoy mentioned that they have managed to keep their occupancy rates steady in both Hong Kong and mainland China throughout this period, which remains their primary objective moving forward. They are ready to accept potential short-term drawbacks if necessary. Overall, he believes that despite ongoing pressures, maintaining occupancy levels will remain a priority.
Link's assets in Australia , including The Galeries in Sydney, and properties like Jurong Point in Singapore, maintained an occupancy rate of at least 99 percent.
The firm mentioned that there might be favorable acquisition possibilities in Hong Kong due to the high volume of troubled assets available for purchase.
Hong Kong and mainland Chinese assets could become appealing to us at the right valuation," Hongchoy stated. "Banks are beginning to accept some discounts to facilitate the recovery of specific assets, which leads me to believe that 2025 will mark a critical juncture, particularly for Hong Kong.
Nevertheless, the firm would approach investments in Hong Kong with "utmost caution," he stated.
As the company marks the 20th anniversary of its first public listing in November, the executives mentioned they are seeking expansion into various markets such as Japan.
Duncan Owen, who serves as the chairman of Link, noted that as the investment management sector expands, there has also been an enhancement in the caliber of our earnings. This means we aren’t reliant on just one geographic region or specific skill set,” he explained. “It’s essential for us to diversify because this diversity over time will enhance the overall quality of our earnings.”
CGS International Securities maintained its buy recommendation for Link REIT, citing it as their "strongly favored top choice." They highlighted two main reasons: an attractive dividend yield of around 7 percent and the potential to be included in the Hong Kong Stock Connect program, which might draw significant investments from Chinese mainland entities seeking high-yield equities.
Retail sales in Hong Kong decreased by 3.5% in March, indicating the continuation of declines for the past 13 months, as reported by recent official statistics. This decrease was milder compared to the 13 percent fall seen in February. The downturn has largely been linked to reduced expenditure from tourists visiting the city along with residents preferring to shop and dine in locations such as Shenzhen across the border due to typically more affordable pricing there.
From 2019 to 2023, rental prices at Hong Kong’s four main retail areas—Causeway Bay, Central, Mong Kok, and Tsim Sha Tsui—decreased by 29% to 47%, as reported by Cushman & Wakefield. However, last year saw an improvement of 3.2% to 6.7%.
Next year, approximately 700,000 square feet of additional premium retail space will be introduced into the current market, adding to the 1.2 million square feet increment observed this year, as reported by JLL.
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The article initially appeared on the South China Morning Post (www.scmp.com), which serves as the premier source for news coverage of China and Asia.
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