THE UNIVERSITY OF HONG KONG

ASSET ENHANCEMENT OF SHOPPING CENTRES

A DISSERTATION SUBMITTED TO

THE FACULTY OF ARCHITECTURE

DEPARTMENT OF URBAN PLANNING AND DESGIN

MASTER OF HOUSING MANAGEMENT

BY

TSE PUI MAN

2010991441

JULY 2012

1
 Abstract

“It must be kept in mind that architects do not design malls for architects; they

design them for developers and retailers that are interested in creating malls and

other shopping centres to attract consumers and keep them coming back.” (Richards,

1990)

Concept of shopping centre (SC) originally emerged in nineteenth-century and the

concept changes over time due to the ever-changing needs and perception from the

customers. Shopping centre originated from an isolated and scattered of shops and

developed into nowadays large commercial retail properties. They do not only

provide leisure and entertainment for the public, but also a place of where provide

business opportunity for investment and profit-making for the retailers and

developers. However, any single property will be decayed and deteriorated over time.

In order to upkeep the standard of the shopping centres, rehabilitation or renovation

work has to be carried out in order to upgrade the appearance, facilities and

equipment of shopping centres so as to maintain their attractiveness and

competitive and keep customers coming back.

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The research topic concentrates on the renovation projects carried out by The Link

Real Estate Investment Trust (The Link REIT) inside public housing estates commercial

properties after the privatization in 25 November 2005. After the privatization,

renovation work of shopping centres becomes one of the main tasks of The Link REIT.

Despite series of political pressure and criticism towards the management of The Link

regarding their renovation work and rental policies, The Link REIT continues to

expand their renovation projects to various public housing estates shopping centre. It

provides a useful and interesting case to study the purpose of renovation on

shopping centre.

The privatization is a divestment exercise of the Hong Kong Housing Authority

(HKHA), over 180 retails and car park properties were sold to The Link. After seven

years of operation, 25 shopping centres are completed with different scope of

renovation work, while others are in various planning stages. Base on the shopping

centre hierarchy definite by The Link REIT, 3 details case studies will be carried out.

The studies compare the data and changes before and after the renovation work,

analysis will be made to compare the operating result during HKHA era so as to

examine whether The Link could achieve the purpose of their renovation projects.

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 TABLE OF CONTENT
ABSTRACT 2
DECLARATION 3
TABLE OF CONTENT 4

CHAPTER 1 INTRODUCTION 5
1.1 Background 6
1.2 Aims and Objective 7

CHAPTER 2 LITERATURE REVIEW 9

2.1 Definition of Shopping Centre 9
2.2 The Concept of shopping centre and its evolution 10
2.3 Types of Shopping Centre 13
2.4 Components of Shopping Centre Success 17
2.5 Rehabilitation and renovation of shopping centres 22
2.6 Study on renovation work of College Grove in U.S. 31

CHAPTER 3 Methodology 36

CHAPTER 4 Commercial Properties of the Housing Authority 39

4.1 Organization Structure of HKHA 39
4.2 Characteristic of Commercial Properties under HKHA 40
4.3 Leasing and Rental of HKHA 43
4.4 Operating Result 44
4.5 Vacancy Rate 45

CHAPTER 5 Overview of The Link REIT 46

5.1 Organization Structure 47
5.2 Leasing and Rental 48
5.3 The hierarchy of Shopping Centres 50

CHAPTER 6 Asset Enhancement Project of The Link 52

6.1 Aims for Asset Enhancement Project 54
6.2 Case Studies on Asset Enhancement Project 58

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CHAPTER 7 Analysis and Findings 81
7.1 Location determines the asset enhancement project 82
7.2 Operating Result of Asset Enhancement Projects 84

CHAPTER 8 CONCLUSION
8.1 Summary 92
8.2 Limitation 93

BIBLOOGRAPHY 95

5
CHAPTER 1 – INTRODUCTION

“Shopping paradise is one of the images of Hong Kong. In this small city, there are

around a thousand of shopping centres in any types and scales. It is hard to survive in

such a competitive environment. Besides, lifestyle and aspiration of shoppers as well

as market trend are ever changing. In additional to global economy recession in

recent years, lots of uncertainties in the external environment affects the retail

sector i.e. needs of customers, market competition and economic and demographic

changes, which is uncontrollable factors facing by managers of shopping centers.

However, shopping centre managers should be responsive to these changes and

flexibly adjust management issue and takes opportunities of assets enhancement to

be best geared to the customers’ varying needs.

In order to maintain competitiveness in the market today, shopping centre need to

be glamorous in design and fitting out. The Link Real Estate Investment Trust (The

Link) is actively doing asset enhancement projects for their shopping centres in

recent years; many of its shopping centres had undergone different scope of

renovation work. In this research topic, we are going to trace the motives behind

their asset enhancement project and find out whether these reasons for asset

enhancement affect what they do i.e. scope and strategy during the renovation of

6
each shopping centre.

1.1 Background

Real Estate Investment Trust (REIT) is a collective investment scheme that aims to

deliver a source of recurrent income to investor through focused investment in a

portfolio of income generating real estate, e.g. shopping mall, offices and hotels, etc.

by means of securitization.

In Hong Kong, The Link REIT (Hong Kong stock code: 823) is the first and the largest

Hong Kong’s REIT which invests in a portfolio of 180 retail and carpark facilities

serving 40% of Hong Kong population daily needs. As a divestment exercise of the

Hong Kong Housing Authority (HKHA), The Link REIT was listed on the Hong Kong

Stock Exchange on 25 November 2005. About 180 retail and carpark facilities are

approximately 11 million square feet of retail spaces and eighty thousands of capark

space are owned and managed by The Link.

1.2 Aims and Objective

The transfer of ownership of shopping centres from the HKHA (public sector) to The

Link (private sector) is called privatization. Many arguments and conflicts were

induced during the privatization process. Before the successful listing of The Link, the

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“Lo Siu-Lan’s case” caused a great sensation in the society and made the listing date

defer. A group of elderly stood for opposing the government to privatize the public

assets. Since there were public voices on The Link about the drastic increase in rent

and parking fee, compulsory removal of tenants and broken promises, a normal

elderly citizen, Lo Siu-Lan, went to courts for appeals and fought for a suspension of

the privatization, not only for her, but also other small existing tenant. Numerous

protest and demonstration were staged before and even after the privatization.

Starting from 2005, The Link carries out asset enhancement projects in 25 shopping

centres. Asset enhancement aimed at upgrading the shopping centre. At the same

time, physical appearance, service to customers and tenants is improved. The

outputs for renovation significantly increase the property values of these shopping

1
centres, therefore The Link called it as an “asset enhancement projects”

Yet those famous shopping centres in Hong Kong like Times Square and Harbour City

also carried out renovation work. Does The Link share the same motives with them?

Dose the motives affect the scope of work for the renovation of The Link’s shopping

centre?

1
The Link REIT, 2005/06 Annual Report, 31 Mar 2006, P.6

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Today is almost seven years after the privatization, 25 of The Link’s properties have

undergone renovation work. It is time for us to investigate “why do they do assets

enhancement work?” and “Do the reasons for assets enhancement affects what they

do?”

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CHAPTER 2 – LITERATURE REVIEW

2.1 Definition of Shopping Centre (SC)

What is a shopping centre? In Asia, the terms, “shopping centre” and “mall” are used

interchangeably. A shopping centre is perceived as a commercial development and

comprises multi-levels for retailing and its supporting amenities such as leisure,

restaurant, medical, entertainment and services. A shopping centre is defined as “a

group of architecturally unified commercial establishment built on a site which is

planned, developed, owned and managed as an operating unit related in its location,

size and type of shops to the trade area that the unit serves. The unit usually

provides on site or associated car parking in definite relationship to the types and

total sizes of the stores.”2 “It also provide facilities, both physical and by way of

services, to those retailers in common and to the public patronizing those retailers”3

In other words, the shopping centre is the development of a place merely for buying

and selling goods to a place for gathering and social occasion with a wide range of

services responsive to the demands of a changing customer needs.

2
John A. Dawson, “Shopping Centre Development”, (London: Longman, 1983), P.1
3
Peter G. Martin, “Shopping Centre Management”, (London: Spon, 1982), P.1

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2.2 The Concept of shopping centre and its evolution

The concept of shopping centre has been evolved from time to time and has gone

through many changes. The concept of shopping centre dates back to the beginnings

of the historical era. In Europe and elsewhere, the centre of town was used as a

marketplace where one farmer might exchange vegetables for another farmers’ grain,

and town people could barter for their “money” for agricultural products. The

markets become not only a place to buy and sell goods but also a social occasion.

Permanent shops were established around the town. Eventually, the town square or

main street became the central business district of a city.

This market place concept further evolved in the United States after the invention of

the automobile. The automobile made it possible to live outside the central city and

still work and socialize there. The social movement like migration out of the city and

the rise of suburbs provide a unique opportunity for developers to create a

revolutionary retail experience – “the shopping centre”.

The first shopping centre is U.S. was found in 1922. It has included all necessary all of

the elements considered necessary for a shopping centre today – free paved parking,

board tenant mix, central management, controlled architecture, and pleasant

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landscaping.

In general, the term of shopping centre frequently is used to signify a group of shops.

As mentioned before, shopping centre is defined as a group of architecturally unified

commercial establishments built on a site which is planned, developed, owned and

managed as an operating unit related in its location, size and type of shops to trade

area that the unit serves. The unit usually provides on-site or associated car parking

in definite relationship to the types and total size of the stores. This definition serves

well as a general definition of a shopping centre, which can be applied in most of the

countries including developing and developed countries, big or small cities including

Hong Kong. One have to be clear of the concept and be able to distinguish that,

however, shopping centre is different from a shopping district. It is suggested that

shopping are simply the concentration of individual shops on individual sites

providing some sort of general node for shopping activities whereas shopping centre

is a planned assemblage of shop units which may or may not exist as part of shopping

district.

With changing consumption patterns and consumer behavior process, different

shopping centres serving different consumer segments and function evolved.

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Shopping centres have transcended the role of purchase site to become a centre for

many possible activities. Shopping centre has become a very important part of our

economy because it serves two important purposes. First, it provides an optimum

retailing environment for the tenants and to meet the shopping needs of consumers.

It becomes increasingly important as they provide services to individual consumers

and the many ways in which it benefits the communities in which it locates. Second,

it provides substantial revenue, a variety of employment opportunities, the

convenience of one-stop shopping, and testing ground for new businesses. With the

changing economy in Hong Kong over past decades, the rapid growth in numbers of

shopping centre associated with a steady evolution of the centre from exists. As an

architectural and commercial entity within the city, the shopping centre continues to

evolve and new forms appear.

With the evolution of shopping centre and changing customers’ needs, shopping

centre developer had to be made the shopping centre become more profitable and

successful. Several components like location, accessibility, management standard,

marketing and trade mix are essential for operating a successful shopping centre.

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2.3 Types of Shopping Centre

There are many different types of shopping centre and they are usually classified by

their size, tenant mix and anchor tenants.

According to Scoulas and Peterson (1990), there are five major forms of shopping

centre exist in the United Sates including the regional centre, the community centre,

the neighborhood centre, the specialty centre and the convenience centre. Those

shopping centres are typically defined by their dominant or anchor tenants and their

gross leasable area and, to some extent, by the population or trade area that they

serve. Taking into consideration that Hong Kong is a small city with only a total area

of 1,1,03 square kilometers, high population growth rate and densely population

area, a hierarchy of retailing centres in Hong Kong can be categorized into the

following three major types of shopping centres based on the size of the centre, the

size of catchment it serves, the range of shops located in that centre and the

availability of other attractions and facilities:-

2.3.1 Regional Shopping Centre

Regional shopping centre, according to Urban Land Institute, provides primarily a full

depth and variety of shopping goods, general merchandise, shoes, clothing and

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accessories, home furnishings, gifts and specialty items, and electronics. Regional

shopping centre is able to offer a full range of shopping facilities and goods with

other anchors include elaborate foods court, cinemas and other specialized,

large-scale entertainment attractions. Customers will shop in a regional shopping

centre to take advantage of greater choice and more diverse tenants. It is also

characterized by significant areas of retail space but fulfills a regional function,

serving a catchment population about 250,000 to 1,000,000 with size in between

500,000 and 1 million square feet.

2.3.2 District Shopping Centres

District shopping centre offers shoppers greater depth and range of merchandise.

The development of district shopping centre is often associated with the addition of

new residential development close by, or with a change in traffic management on

nearby roads including buses, taxis and private cars as well as rail linkages via railway

stations. District shopping centre typically has around 200,000 to 500,000 sq. ft. in

size.

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2.3.3 Local / Neighborhood Shopping Centres

The function of the local shopping centre is to provide a range of convenience goods

and personal services and is located within walking distances of residential

developments. Similar to the case in United States suggested that, local shopping

centre is designed to provide day to day necessities to people living within a five to

ten minute drive of the site. Besides, the local centre commonly has a supermarket

and accompanied by a drugstore. The tenant mix of local centres is to meet with the

specific needs of surrounding residents. Customer shopping patterns show that

geographical convenience is the most important factor in determining a shopper’s

choice for daily necessity.

Although the pace of the shopping centre development differs between countries,

most developed countries have experienced almost the same evolution. Brotman

(1996) emphasized shopping centre “means taking chances – providing the best mix

of product, price, convenience and fun – essential to satisfying the ever-changing

lifestyles and shopping habits of new breed of consumers.” Despite the various form

of shopping centre discussed above, all shopping centres have to keep up and fulfill

the needs and requirement derived from challenges for its existence and survival.

One of the major challenges is that shopper may be the final arbiter of the success of

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the centre. If the shopping centre can achieve a strong footfall, it serves as a good

indication that the centre may be attractive and convenience for shoppers, which in

return will be able to generate profit for both the landlords and tenants. However,

the method and tactics to achieve such goals pretty much depends on landlords or

developers decision on shopping centre renovation or successful asset management.

Here comes to a question. Could a local shopping centre up-graded into a regional or

district shopping centre? The answer for other western countries like U.S. and

European countries, the answer may be no due to the geographical factor. However,

in a small city like Hong Kong, it could be possible. And it was exactly what The Link is

trying to do. Before the privatization, the shopping centre are owned and managed

by the Hong Kong Housing Authority. The original purpose of these shopping centres

was serving the low income people living in nearby public housing estates and

provides business / jobs opportunities for those people i.e. a local shopping centre.

However, after HKHA had sold over 180 retails and car park to the Link in 2005, all

shopping centres are now privately owned by the Link. Since the Link is a private

listed company, their aim was to make profit. The shopping centres are their

weapons to gain profit. The old appearance and local type of retail stores are not

profitable, thus they are trying to renovate and upgrade their shopping centres.

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Although the size of shopping centre could not be changed or enlarged as it is strictly

bounded by the government lease, the Link is trying to up-grade their shopping

centres from a local shopping centre to a district / regional shopping centre by

different means and scope of renovation, or they called it as “asset enhancement

projects”.

2.4 Components of Shopping Centre Success

In order to study the reason for renovation work by the Link, we shall understand

some general criteria and components for shopping centre success.

2.4.1 Location, Access and Visibility

The best location for a particular shopping centre depends on the type of centre

being built. Typically, a district or regional shopping centre will be location in a

densely populated area near an expressway, focal point for traffic or along a major

arterial street. A neighborhood centre must have an adequate population of

shoppers and a location at the intersection of two well-traveled streets or, at the very

least, facing a well-traveled street.

Secondly, access is critical for all types of shopping centre. Modern shoppers

emphasis on the value of convenience, and they will not spend an extra time or

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waiting in the public transport to get into a shopping centre. Good access will include

convenient for private cars to drive in, easy and big parking space, as well as near to

the mass transit railways for accessible with different public transportation route.

Even though the shopping centre is not located near MTR station, developer will

always have strategies to make it become “accessible”, like arrangement of shutter

bus from point to point. That would make the shopping centre more accessible and

customers would more willing to go there.

If there were only one shopping centre in a town or district, it could be located

almost anywhere and people would find it readily enough they would have no other

convenient choice. However, most shopping centres have competition, and that is

where visibility becomes essential. Visibility is what reminds customers that the

centre is there, even when they have no immediate need to shop. From the street, it

should be easy to see how attractive the centre is and how easily it can be accessed.

Such visibility for example could be done by attractive appearance and successful

marketing and promotional activities.

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2.4.2 Management and Marketing

The tremendous success of shopping centres over the years can be attributed, in part,

to their management. The management could be classified in leasing level and

operation level. On leasing aspect, good management allow better trade mix and

tenant mix, it keeps the merchants focused on the trade area so their merchandise

and pricing remain a good fit with the customer base. On operation level, good

security, better customer’s services and cleaning condition, fosters good business

practices, encourages advertising and provides a clean attractive environment for

shoppers.

Marketing is another increasingly important in the shopping centre industry.

Management and marketing personnel typically budget large amount to pay for

aggressive advertising and promotional campaigns throughout the year. The most

likely reason for this new found interest in marketing is due to increasing competition

between shopping centres. Especially nowadays Hong Kong, many developers are

owning and managing different shopping centres, they are all very similar to each

other in terms of tenant types, convenience, accessibility and in-mall facilities etc.,

the one with the best marketing program is most likely to have the largest volume of

sales and the easiest time leasing vacant spaces.

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2.4.3 Tenant Mix and Demographic Profile

Tenant mix is critical to a shopping centre, much more so than in an office building or

an apartment complex. This is because retail tenants require customer traffic to

generate the sales that are the measure of their success. To be successful, a shopping

centre must have complementary store types that will maximize the attraction to its

prospective customers. The manger’s objective is to create a tenant mix that will best

provide the goods and services required by a particular population.4 For example in

a shopping centre located in an affluent community, the shops are more likely to be

upscale, with particular emphasis on personal services and an aesthetically appealing

ambience. On the other hand, in a shopping centre serving a lower-income area

where shoppers are generally more price-conscious, the tenants are more likely to be

offering value-oriented goods and services.

In general, it is not advisable to include both upscale merchandise and

bargain-basement goods in one centre. The manager should always strive to provide

a tenant mix that offers the broadest range of goods and services consistent with the

demographic profile of the trade area.

4
Alan A. Alexander, Richard F. Muhlebach, “Shopping centre management”, (London: Longman,
1983), P.4.

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To create a proper tenant mix for a shopping centre, one must study the population

of prospective customers to determine what they are likely to buy. Data on

population sizes, age, family or household composition levels of education, income,

and homeownership etc. These data comprise the demographic profile of a shopping

centre’s trade area. Census information, various research data could have provide

what consumers buy and how much they spend on different types of merchandise.

Statistic on income also reflect the potential buying power of the consumers in a

given distract. These research and statistic should be studied carefully before specific

retailers approached to become tenants in a shopping centre. Once tenants are in

place, their sales and merchandise must be monitored to assure that the tenant mix

are “right” and suitable for the customers in specific district. Besides, an

understanding of the ongoing changes in the demographic profile of the trade area

will help the manager make the best decision to keep the shopping centre

completive and extend its useful life.5 For example nowadays Hong Kong, many

developers or landlords would state clearly in the tenancy agreement that tenants

are requested to provide monthly gross sales report and yearly audited sales report

to reflect the sales and business operation of the tenants. Such monitoring work

would able a leasing team to determine which trade category or tenants are suitable

5
Alan A. Alexander, Richard F. Muhlebach, “Shopping centre management”, (London: Longman,
1983), P.5.

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for nearby consumer’s preference.

2.5 Rehabilitation and renovation of shopping centres

With increasing challenges and competition between shopping centres, developers

and property owners are exploring opportunities to rehabilitate existing shopping

centres. Rehabilitation is not being done because of deterioration of their physical

appearance, it is also a mean to enhance the value of the property or to maintain its

existing value to prevent further decline.6

In general, the renovation and rehabilitation of shopping centre is aiming to achieve

the followings7:

i) Increase the sales of existing tenant

ii) Attract new tenant to boost sales and footfalls of the shopping centre

iii) Improve the mix of tenants to strengthen the sales performance and secure

more income for the owner or developers.

iv) Improve existing shopping centre facilities and equipment

v) Improvement of customer services and management standard

6
Alan A. Alexander, Richard F. Muhlebach, “Shopping centre management”, (London: Longman,
1983), P.46.
7
William Applebaum and S. O. Kaylin, Case studies in shopping center development and operation,
(New York : International Council of Shopping Centers, 1974), P.163

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 vi) Utilize excess land for purposes that would benefit the tenants in the centre

and the owner

vii) Revise architectural, parking, and access design to improve circulation of

customer traffic

In order to fulfill the goals above, common strategies are used for shopping centre

renovation and rehabilitation. These strategies are inter-dependent and critical for

the success of shopping centre renovation and rehabilitation.

2.5.1 Location and accessibility

Location is an important factor for shopping centre and it represents a function of its

accessibility and its proximity to amenities and facilities. The location of shopping

centre also affected its catchment area i.e. the nearby demographic profile which will

be attracted by the shopping centre. However, a location for a piece of real estate is

unchangeable. The location of each piece of real estate is also unique because no

two pieces of real estate would have exactly the same location. Therefore, whenever

there is a deteriorating shopping centre which needed to be renovated, the manager

or the developer will make use of the introduction of new infra-structure to minimize

the locational disadvantages of a shopping centre. For example, the introduction of

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transport facilities i.e. shuttle bus, public transporting routes will enable a shopping

centre to increase their accessibility and increase its catchment area, so that it could

attract more people to come for shopping.

2.5.2 Visibility

Ideally, shopping centre should be visible to vehicular and foot traffic. Shopping

centre should also be visible on different media i.e. internet, advertisement, poster

etc. As shoppers are needed to be triggered by stimuli8, signage of the shopping

centres and their tenants are important for providing visual cues to the shoppers.

The entrances of shopping centres must be marked clearly with no obstruction of this

view especially for motorist who drive to the shopping centre. Therefore, many

shopping centres will choose the re-design their shopping mall logo and re-locate the

signage during their renovation work, so as to draw more attention from nearby

consumers.

2.5.3 Sizes and space planning

The size of a shopping centre usually refers to its gross floor area. This is total amount

of build-up area within the building envelope. The GFA are usually strictly bounded

8
Lynda Wee Keng Neo, Tong Kok Wing, The 4 Rs of Asian shopping centre management, (Singapore :
Marshall Cavendish Academic, 2005), P.21

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by the government lease in Hong Kong, and the size of shopping centre is directly

affecting the net leasable / lettable area of the shopping centre.

It is critical that the size of shopping centre should be relevant to the size of the

market that it intends to serve. For example, a one million square feet shopping

centre would fail if it is only serving a catchment area of 30,000 people with limited

propensity to spend and no support from tourist or business shoppers. A shopping

center’s large size can help it to off-set its disadvantaged location. This is because the

large size allows the shopping centre to assemble a wide varity of retail stores under

the same roof to provide for a better trade mix. A better trade mix will thus attractive

more shoppers and increase the catchment area for the shopping centre.

However, like the locational factor, size is not changeable and is strictly bounded in

the government leases. For shopping centre renovation, space planning and design

are very important strategy. Given the allowable gross floor area, the shopping

centre management has to plan the use of space that would optimize the return on

investment and meet the operational needs of it tenants. It has to make full use of

the allowable gross floor area to incorporate the space requirement of anchor

tenants, specialty shops, food and beverage outlets, common open space and

shopping mall facilities etc. Commonly used space planning and re-design strategy

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are listed as below:

i) Adopt simpler layout, it will be easier for shoppers and other visitors to move

from shops to shops. It will also facilitate easy circulation of shoppers. Avoid

having secondary corridors as shops in these locations will not get good shopper

traffic.

ii) Adoption of atrium concept or similar type of design. Care must be taken to

address the needs of tenants for exposure and visibility both vertically and

horizontally by not giving too many staircases, walls, columns to block the line of

sight.

iii) Re-design the layout of vertical transportation facilities such as escalators and

elevators at strategic location to distribute shopper traffic while allowing for

quick movement of tenants from floor to floor.

iv) Creation of funnel-effect by locating the anchor tenant spaces, special features,

or clusters of certain types of tenants strategically so that shoppers would be

drawn to walk through the shopping centre and pass by as many shops as

possible.

From the above, we could learn that the key for space planning during a shopping

27
centre renovation was to maximize the productivity of the space in a given limited

gloss floor area, so as to maximize the footfalls in all area and circulation of shoppers

within the shopping centre.

2.5.4 Re-arrange of Trade Mix: Present of Anchor tenant and balanced tenancy

“Anchor tenant” usually refers to a successful large retail brand with the necessary

expertise and offering to attract a critical mass of shoppers of its store. It serves as a

destination store which shoppers would put in effort to visit. The presence of an

anchor tenant serves to boost the confidence of the smaller retailers who are

contemplating taking space in the shopping centre. Some anchor tenants in HK are

like department stores and supermarket, e.g. Parknshop, H&M, Jusco, UNY and

Log-on etc. Some of the anchor tenants are having a great branding and selling

expensive luxury goods, e.g. Gucci and Louis Vuitton etc.

The presence of anchor tenant provides a pulling effect for the shopping centre. It

should be positioned carefully as the magnet to draw shoppers into the shopping

centre and encourage these shoppers to pass through as many of the smaller shops

as possible. This would give the other stores more visibility, exposure and probable

sales. There also should not be any direct ingress for the shoppers to the anchor

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tenant’s premises. If shoppers can access the anchor tenant premises directly, they

probably ignore or by-pass the other stores. Alternatively, counter-point for attracting

shoppers, e.g. attractions such as specialty retail zones, architectural features, and

installations can be placed across from the anchors to move the shoppers round.

Besides the lease for the anchor tenants, the trade mix plan of shopping centres also

determines the types of retailers the manager brings into the shopping centre and

how the different types of retailers will be placed to create a synergistic effect and

provide a better shopping experience for shoppers through a balanced trade mix.

Because the shopping consumption pattern changes with time, the trade mix should

be monitored and managed continuously. New relevant and promising stores should

be added whilst the sub-performing stores to be removed. Therefore, during

shopping centre renovation, trade mix is usually re-arranged and relocated.

There are two concepts for trade mix. The clustered concept refers to gathering of

similar and related trades together. The advantages is that it makes it easier for the

shoppers to pick their purchases quickly when they are in a hurry, and it also

provides an opportunities to do comparative shopping on the product range and

prices. A good cluster of related trades can position the shopping centre as the place

29
to go for that category of trades and hence draw more shoppers. For example, Kwai

Fong Shopping Centre in Hong Kong, are famous for gathering of young street fashion

shops and a cluster of a number of small retail shops selling a wide variety of young

fashion-related and life-style items for young people. The positioning of shopping

centre, as a result, attracted many young people and teenagers to that part of

shopping centre.

The second concept is scattered concept. It refers to randomly placed stores which

require the shoppers to move around the shopping centre to discover the various

types of stores available. However, this approach requires the shopper to have time

to shop. Therefore, by most Asians countries and cities including Hong Kong, would

prefer the clustered concept, because they are “bargain-hunter” and they life-style in

Hong Kong is so rush that people have limited time available to shop. Therefore very

common type of trade mix during shopping centre renovation is re-zoning of

trade-mix. There are always different group of zoning gathered with similar types of

shops.

2.5.5 Customer Service Standard

After we have talked about the planning level and leasing level for shopping centre

30
renovation, we come to discuss the common strategy on management level after the

renovation work i.e. enhancement of customer service standard, no matter it is in

terms of software and hardware. Example for hardware customer services includes

lockers, restroom, baby room and even wifi. Software more or less related to the

security services, house-keeping issue and customer service standard.

Shopping centre industry today is more or less like a service industry. The shopping

centre exists to serve the needs and wants of their target customer. Hence, giving a

warm welcome to the customers and enable the customers to enjoy the shopping

experience within the shopping centre as well as giving them a very comfortable

shopping environment is essential. Especially nowadays Hong Kong, people are

become more demanding, the focus should be on the customers and delivering their

needs and wants quicker, cheaper, and better than other competitors. If a shopping

centre are doing good with customer service, customer loyalty will be enhanced,

thus attracted more people to come.

After mentioned the above theoretical basis in renovation strategy, we will now take

a look an academic case study done on improving a regional shopping centre after a

decade of operation.

31
2.6 Study on renovation work of College Grove in U.S.

In 1971, the management of College Grove (CG), a regional shopping centre located

in San Diego, California of United States, decided to start series of renovation work to

improve the centre which has operated over a decade. The centre was opened on 28

July 1960, and over the ensuing decade it produced for its owners a profit that the

management considered to be below average. In addition to the emergence of new

competitor i.e. the opening of Fashion Valley, a regional shopping centres with three

department stores, in the fall of 1970. Management was exploring ways and means

to achieve following targets9:

a) Increase sales of existing tenant

b) Improve tenant mix and secure the profit for the owners

c) Utilize excess land for purpose that would benefit the tenants in the centre and

the owners

d) Revise architectural, parking and access design to improve circulation of customer

traffic

9
William Applebaum and S. O. Kaylin, Case studies in shopping center development and operation,
(New York : International Council of Shopping Centers, 1974), P.163

32
2.6.1 Basic background for College Grove

The land on which College Grove stands was originally owned by a man called Geroge

Scott, president of Walker Scott, operators of a chain department store in Southern

California. The management was appointed to an agent company to look over the

leasing and daily management of CG.

CG was planned as a one-and-a-half level centre, with the lower level designed for

convenience stores such as a supermarket, a drug store and other facilities to supply

the daily needs of shoppers. The upper level was designed for shopping goods –

fashion, appliances, housewares, furniture and jewelry etc. Large carpark area was

surrounding to the shopping centre

2.6.2 Existing weaknesses of College Grove after a decade of operation

According to the studies, some weaknesses of College Grove are concluded as below:

a) 65% of CG “Regular” customers lived 10 minutes driving time from the centre

b) “Regular” customers of CG were older in ages and with low purchasing lower

c) “Non-Regular” customer reported CG is “too far from their home”; they had

never shopped at CG or did not gone for shopping there within past year. They

would rather shop in other competitors shopping centre;

33
d) Poor sales performance of their tenants, and low overage income from the

tenants;

e) Department stores were most frequently visited by shoppers while other shops

remain low pedestrian flow;

f) Excessive parking space. Many parking spaces were usually abandoned;

2.6.3 Strategy used in renovation and analysis

a) In view of excessive parking space, the management of CG has converted the

excessive area into a Cinema. A cinema has cultural and community acceptance

which helps the centre to attract new potential shopper. Promotion undertaken

cooperatively by the centre and a cinema could draw new traffic to the centre.

Family and Children would be attracted during Weekend, and the parents could

also shopped in College Grove which brought benefits to other tenants;

b) A second department store was introduced into the shopping centre. Since

department store was the main destination for the shoppers to visit, the

introduction of additional department store would draw more shoppers to the

centre, thus helping all stores in the centre to achieve higher sales. The Lands is

also available on which another department store could be built, without

34
 bringing the ration of parking spaces to total store space below acceptable

standards at that time;

c) Joint-sales promotion and discount activities for all tenants and stores inside the

shopping centre are launched. This did not only attract customer to the centre

but also boosted up the sales of all stores inside the centre;

d) Excess parking space contributes to shoppers’ impression that a shopping centre

is not well patronized. With many empty parking spaces, shoppers tend to

believe the centre itself is empty despite the possible presences of large numbers

of people. Therefore, renovation work has carried out on decorating the external

area (the carpark space surrounding the shopping centre). Part of the parking

space also turned into landscaping area which give a better recreational

environment for the shoppers;

e) The management of CG exercised a better leasing strategy and trade mix control.

One on hand, they did not renew leases of weak tenant when those leases

expired, and replacing those tenants with more productive and attractive tenants.

On the other hand, the management adopted a positive program of finding and

installing good, new aggressive tenants who can contribute to the attraction of

the entire centre, even if special inducement must be offered to attract such

35
 tenants. Special inducement included relatively low rent per square feet and

rent-free period etc.

All the above renovation strategy aimed to improve the customer traffic and footfall

for the shopping centre and also boost up the sales of other tenants throughout the

entire centre. After taking a look at the literature review of shopping centre and

strategy on renovation of shopping centre, we would go into the core part of the

research paper, the asset enhancement project of The Link REIT.

36
CHAPTER 3 - Methodology

At the beginning of this paper, we have took a look at some literature review about

the concept of shopping centre and its evolution, as well as the important factor for a

shopping centre success, and the common strategy for shopping centre rehabilitation

and renovation.

Furthermore, we will try out find out the reason for the asset enhancement work of

The Link, and discuss how far could their work fully achieve their aims.

Firstly, we will take a brief overview about those commercial properties before

privatization by The Link, includes the characteristic and operating result of

commercial properties under management by the Hong Kong Housing Authority.

After some basic concept and information about the HKHA, there will be some

general history about The Link and the profile information after the privatization.

Brief description on The Link’s organization structure and leasing strategies will be

made so as to show the contrast comparing with the HKHA.

Moreover, based on the interpretation from the senior management of the Link,

analysis will be made on their reason for asset enhancement projects. And the aims

37
could be classified into 3 major aspects: 1) For the Corporate; 2) For the Business

Partners and 3) For the Customers and shoppers. In view of The Link, asset

enhancement work was their strategy and means to achieve the above mentioned

aims. In addition to that, a schedule and existing progress of The Link’s asset

enhancement projects will be presented in order to get a clearer picture for their

planned or completed works schedule.

After we have identify the reason of asset enhancement work, we will study the

scope of work of the asset enhancement projects of the shopping centres, get latest

information about their operating result after the asset enhancement projects, so as

to find out whether what they have done could fully achieve their aims. A cases study

approach will be adopted to study the scope of enhancement projects.

According to the official announcement by The Link, there are 25 shopping centres

out of their 180 retails properties have finished with asset enhancement projects, it

is not possible for us to study those 25 projects one by one. One question may be

raised immediately, how to choose single out few cases to study among those 25

projects? By random selection? Instead, The Link has its own classification on the

types of shopping centre, and they have grouped the 180 retails properties into

38
different categories base on their ages, size, location, rent receivables and potential

for growth and development. They have planned the priority for asset enhancement

work base on the types of shopping centre. Every completion of asset enhancement

work, the shopping centres will be classified as a “plaza” grade shopping centre. For

example, “Lok Fu Shopping Centre” is re-named to “Lok Fu Plaza” after the

renovation project, which reflects that the shopping centre was upgraded and

regarded as a model shopping centre within The Link.

Therefore, we will choose one case from each type of shopping centre, go into detail

of their scope of work, what they have done, and finally tried to find out whether this

types of changes could fully achieve their aims. Important Statistic and operating

result of the upgraded shopping centre will be highlighted, which enable us to

determine whether their strategy is right and correct.

39
CHAPTER 4 - Commercial Properties of the Hong Kong Housing Authority

The HKHA is a statutory body established in April 1973 under the Housing Ordinance

by the British Government. It aims to provide public housing for the lower income

people who cannot afford private housing. Although their core business are providing

subsidized public rental housing to the people in need, in order to fulfill the daily

needs of the residents and achieve self-sufficiency within the communities,

commercial facilities are provided in each public housing estate generally. On the

other hand, these commercial facilities should be an ideal place for general retailers

to operate their business, and even low income people living in nearby public

housing estate would treat it as an opportunity to operate business inside these

commercial facilities due to the high population density and stable resources of

consumer in public housing estates.

4.1 Organization Structure of HKHA

Aside from Chairman and Vice-chairman, the HKHA has two official members and 26

non-official members. Appointment is made by the Chief Executive of Hong Kong.

With the reorganization of the policy bureau of Government Secretariat from 1 July

2007, the Secretary for Transport and Housing was appointed as the Chairman of the

HKHA. The director of Housing Department acts as the vice-chairman.

40
HKHA has formed six standing committees, including Building Committee,

Commercial Properties Committee, Finance Committee, Strategic Planning

Committee, Subsidized Housing Committee and Tender Committee. They formulate

administer and oversee policies in specified areas.

4.2 Characteristic of Commercial Properties Managed by the HKHA

Before the listing of The Link in Nov 2005, retail and carpark facilities are under the

management of the Commercial Properties Committee of the HKHA. The Committee

was responsible for providing desired commercial facilities to public housing tenant

and for ensuring a source of income which would be channeled back into subsidized

public housing. The HKHA committee was a decision making body, under the HKHA,

the Housing Department was executive institute to execute the decision and policies

made by the HKHA. There is a division called in Housing Department called

“non-domestic” mainly responsible for leasing and management issue of the

commercial properties of HKHA.

To begin with, let’s take a brief concept about the characteristic of commercial

properties under the management by HKHA listed as below:

41
1) They majority of the people flow and consumers are the resident in the public

housing estate;

2) Competition inside each HKHA shopping centre is balanced due to the tenant mix

or proportion of shop variety is fixed strictly by the HKHA. However, competition

will become fierce when there is a private shopping centre built nearby. On the

other hand, for those isolated public housing estates, no private shopping centre

would be willing to invest there and the HKHA shopping centre would be

monopoly, so nearly no market competition exists.

3) Some commercial properties have incorporated welfare centre, kindergartens,

elderly centre and schools to suit the social and educational needs of the

residents.

4) There is not sufficient promotion for the shopping centre because HKHA is a

public body. Shopping centre in public housing estate is a kind of service rather

than a business.

5) Performance of property management is below average in the tenants’ view, no

matter in security, cleansing and maintenance aspect. Vacancy rate for shops and

market stalls is high due to poor leasing management by HKHA officials.

6) Although tenants often complain about the shopping centre, most of them would

42
 renew the tenancy contract due to the low rents (lower than market price)

compared with those private shopping centres.

4.3 Leasing and Rental of HKHA

HKHA would fix a suitable tenant mix for a shopping centre before Leasing. There are

two main letting methods to determine the rental: by tender and by negotiation.

For letting by tender, the tenancy will be granted to the highest bid, provided that

the rent set in the tender needs to exceed the lowest acceptable rent of the ship

which is assessed by the Surveyor of HKHA. Otherwise, HKHA will negotiate with this

highest bidder for the lowest acceptable rent. The shop will put into open tender

again if the negotiation failed.

Letting by negotiation is for those targeted potential tenants, e.g. restaurants. Shops

with larger floor spaces, failed to attract suitable bidders in at least one open tender,

or designed to be an attraction, or existing tenants with capability for expansion

business can exercise letting by negotiation.

Apart from the above two methods, some shops are designed to be clinics and

43
tenants assigned by the Estates Doctors Association. A raffle would be drawn from

the list of doctors who applied to operate clinics in public housing estates.

However, HKHA cannot negotiate rent or trade with its commercial tenants as free as

a private owner or developer since it is a government body. Yet all rents in HKHA

shopping centre are set to be under the market rent. The average monthly rent was

about $15 per square feet before the privatization in 2005.10

Generally, fixed-term leasing (three years) or short-term letting (12 months) is

granted for the tenancy term. The HKHA has the power on the decision of renewal of

tenancy, yet the tenancy is always renewed unless the tenant chooses to end.

Therefore, there are usually little changes in tenant mix inside the shopping centre

managed by HKHA. And many shops were operated for many years and had

transferred to their son or grand-son for over two to three generations.

In order to reflect and get in line with the market trend and inflation, the rents would

be reviewed on two or three year’s basis, depending on the terms and condition on

the tenancy. Meanwhile, the tenants have the right to negotiate with the HKHA if

10
Hong Kong Housing Authority, Medmorandum for the Commercial Propoerties Committee, Paper
No. CPC 6/2005

44
they disagree with three reviewed rent. Besides, the tenant will have right to apply of

rent deduction during difficult time, for example the SARS period in 2003, many

retailing business in Hong Kong was declining very much, many tenants apply for rent

deduction or rent-free period to the HKHA. Due to the government policy, HKHA

usually showed their concern to the small tenant and granted with their rent

deduction application.

4.4 Operating Results

The income form the commercial properties played an important role in the HKHA.

Especially after 1997, the first Chief Executive, Mr. Tung Chee-hwa, had announced in

his first policy address that aimed to achieve 70% home-ownership and to build and

provide massive public housing estates so as to shorten the waiting list of public

housing estates within 3 years. Although the home-ownership scheme has stopped

by the 2nd Chief Executive, Mr. Donald Tsang, this still had resulted in great income

deficits by the HKHA public rental housing aspects. These deficits could be partly

offset by the surplus derived from the commercial properties. In below table, we

could understand that the commercial properties in public housing estates

contributed positively in the cash flow of the HKHA:

45
 Operating surplus / (Deficit) ($M)
Year
Public Rental Housing Commercial Properties
2001/02 (2446) 1752
2002/03 (828) 1427
2003/04 (85) 1207
2004/05 606 1369
2005/06 460 1200
11
Figure 1: Operating Result of HKHA for Years Ended 2002 to 2006 of the HKHA

4.5 Vacancy Rate

As mentioned before, the vacancy rate in HKHA commercial properties is quite high

compared with other private commercial centre. This was not only because the HKHA

is a government body and the government officials were usually in lack of incentive

to find new potential tenants for the shopping centre, but also because of the

shopping centres appearance are old and the purchasing power of nearby residents

are comparatively lower, thus it is difficult to attract great branding tenants to settle

in those shopping centres. Thus, vacancy rate is high. Referring to the table below,

we could see that the vacancy rate of commercial properties remained quite high at

the level of 6-7% during 2001 to 2005. The vacancy rate even reached the highest

7.56% in the year of 2005/06 before the handover to the Link.

Year 2001/02 2002/03 2003/04 2004/05 2005/06

Vacancy Rate (%) 6.7% 6.18% 6.3% 6.8% 7.56%
12
Figure 2: Vacancy rate of Commercial Properties for Years Ended 2002 to 2006 of HKHA

11
Hong Kong Housing Authority, Annual Report 2005/06, P.76
12
Hong Kong Housing Authority, Corporate Plan from Year 2003/04 to Year 2007/08

46
CHAPTER 5 - Overview of The Link REIT

As a divestment exercise of the HKHA, over 180 retail and carpark facilities are

privatized and managed by the Link. And the Link was listed on Hong Kong Stock

Exchange on 25 November 2005. (Hong Kong Stock Code: 823). As at 31 March 2012,

the portfolio consists of properties with an internal floor area (“IFA”) of

approximately 11 million square feet (“sq ft”) of retail space and approximately

80,000 car park spaces. The portfolio’s retail facilities, located on the doorstep of

over 40% of Hong Kong’s households, primarily serve the daily needs of people in

Hong Kong. The car parks mainly serve tenants and customers of the retail facilities

and residents of the surrounding neighbourhoods.

The Link as a market-driven and value-creating asset manager aims to offer inventing

shopping experience to customers, prosperous business opportunities and return to

tenants and rewarding financial returns to investors. The current investment strategy

of The Link is to invest in sustainable income producing properties in Hong Kong that

are mainly for retail and car park use and to maximize their value through asset

enhancement works encompassing physical structure, trade-mix, customer service

and promotional activities. As these enhancement projects progress, the portfolio

offers customers a better shopping experience with more choices at reasonable

47
prices, whilst improving returns for unitholders of The Link REIT. Their cores values

are Vision, Mission and Value: To be a world class real estate investor and manager

serving and improving the lives, providing value-added and quality service and

managing the business with Respect, Excellence, Integrity and Teamwork.13

5.1 Organization Structure

The Link is a private listed company, and the board of The Link comprises 11

members and 8 of them are independent non-executive directors (including the

Chairman). The board is principally responsible for the management, the conduct of

its business and the overall governance.

Under the board, there is the Chief Executive Officer and the Chief Financial Officer

oversees all of the business operation of the Link. There are seven major

departments in The Link: Leasing & Mall-merchandizing, Human Resource, Risk

Management & Company Secretary, Cooperate Communication, Project and Planning,

Property Management and Operations and Carpark Management Team. Leasing

department responsible for all leasing matters i.e. Retail shops, markets, Cooked

Food Stall, in-mall advertising space and sales venue / kiosks. The Property

13
The Link REIT Annual Report, 2011/12

48
Management Team responsible for daily operation of the shopping centres i.e.

security, cleansing and repair and maintenance. Meanwhile, the Project and Planning

department will take charge with the Asset Enhancement Project. They will decide

the priority of which shopping centre will carry out renovation work, and also they

will study the feasibility and scope of work for renovation projects.

5.2 Leasing and Rental

During the handover of those 180 retail commercial properties from HKHA to The

Link in 2005, there was a transitional period on the tenancy agreements. The Link is

agreed withstand all the terms including rent, management fee, air condition charges,

rates and lease term stated in the HKHA tenancy agreement upon the lease expiry.

The tenancy renewal was subject to their negotiation with the Leasing Manager.

However, The Link will usually add compulsory term on tenancy renewal e.g. require

the shop to carry out renovation work so as to upgrade the standard of the shopping

centre. In addition, increasing the rent is common practice during tenancy renewal of

The Link.

The other method for leasing of vacant shops is also by tendering. The Link will invite

tenders for commonly the 3-year tenancy of the premises stated in the Tender Notice

49
for specific trade. Tenderers must state the monthly suggested rent they are

prepared to offer. The highest offered rent will be awarded for the tender, and the

tendered rent will be final and not subject to negotiation.

Apart from tender, potential or interested tenants can also submit leasing application

form stating their proposed trade and shop size in which district or specific shopping

centre. The potential tenant will also need to fill in the affordable rent in the

application form. On the contrast, the rent stated in the application form is

adjustable depends on the final negotiation. After that, leasing department will

consider the possibilities whether there are any vacant shops within the districts.

On the other hand, The Link put much effort in introducing many anchors tenant and

new branding into their shopping centres e.g. McDonald’s, Maxims, Starbucks, SaSa

Cosmetics, G2000, UNY etc., in order to enhance their value, attractiveness and

competitiveness.

Last but not lease, they will also constantly invite interested client to rent for some

open space or common area within the shopping centre for displaying promotional

50
materials or advertisement. For example, advertising signboards, showcases,

columns and buntings etc.

5.3 The hierarchy of Shopping Centres

As mentioned earlier, The Link has her own retail properties hierarchy. According to

their hierarchy, The Link will plan the priority for asset enhancement project for the

shopping centres. They are generally differentiated by ages, sizes, location,

catchment of people, variety of shops and facilities, potential for growth and

development. Since The Link would be establish corporate image and flagship in the

real estate and shopping centre industry, some larger and “younger” shopping centre

will be put in a higher priority position for asset enhancement project. The hierarchy

and types of shopping centre are defined in below table:

Type of centre Description / Characteristic

Star/Flagship Shopping  Largest internal floor area in terms of square feet within The
Centre Link;
 Shopping centres usually aged 10 years or below 10 years, built
in 1990s;
 Located along public transport route and famous tourist spot;
 Catchment draws not only from nearby Public housing estate,
but also outside the district and even foreign tourists.
Catchment also with a certain median income level and
purchasing power;
 Great variety of shops (about 200 to 300) and anchored by chain
stores, supermarkets, branded retailers and restaurants.
 Examples: Lok Fu Plaza (Wong Tai Sin), Stanley Plaza (Southern
HK Island)

51
District Shopping Centre
Estate retail shops /
Street shops
Figure 3: The classification of Shopping Centres
 Typically more than 100,000 square feet, certain smaller centre
which may exhibit the characteristic of district centre will also
group in this category;
 Usually larger and newer, located in larger public housing
estates;
 Shopping centres usually aged between 10 to 20 years
 Located in public transportation route like MTR station and
main bus route;
 Catchment draw from nearby public / private residential area, as
well as district with two to three MTR station farther away;
 With present of chain stores and supermarkets but also
numbers of small local tenants. Total number of shops around
100 to 200;
 Examples: Lung Cheung Plaza, Wong Tai Sin Plaza (Wong Tai Sin)
 Typically less than 50,000 square feet and small
shops located near to the estate boundary and
streets
 Typically comprise of shops on the ground floors and
podium of domestic residential buildings
 Collection of ancillary shops serving the residents and
car park users
 Dominant by small traditional store and convenience
store
 Examples: Tsz Lok / Tsz Oi Retail Centre
52
CHAPTER 6 - Asset Enhancement Project of The Link

After the classification properties hierarchy, The Link has chosen few vanguards from

each type of shopping centre initialed with the asset enhancement project. Those

shopping centres with higher priority are usually with better potential for

development and better chance to earn more incomes.

According to the Link, asset enhancement is a key element for improving the

shopping environment and service to customers and tenants, and returns to

unitholders. The communities they served will also benefited as their properties are

enlivened, job opportunities created and more customers attracted to the shopping

centres for local shopping.

The enhancement work was not only in physical structures, but also in trade mixes,

customer services and promotional activities, which enables The Link to maximize

the potential and value of their properties. In the past few years, The Link has

initiated a series of asset enhancement project in their shopping centres. As a result

of considerable returns for the company and unitholders, they are expanding the

programme to more shopping centres, even some smaller scale and local estates

shopping centres are currently in various stages of renovation. The progress of asset

53
enhancement project could be shown in below table, 25 shopping centres which has

been completed with the enhancement projects was renamed to “plaza”, while other

6 shopping centres are undergoing the renovation work in different stages.

No. Property Name Year Built IFA (Sq. Ft.) Completion

1 Butterfly Plaza 1983 174,651 1st Quarter 2010
2 Cheung Fat Plaza 1987 165,667 1st Quarter 2010
3 Choi Ming Shopping Centre 2001 99,006 4th Quarter of 2007
4 Choi Yuen Plaza 1982 127,935 2nd Quarter of 2011
5 Chuk Yuen Plaza 1984 137,966 1st Quarter of 2011
6 Chung Fu Plaza (Phase 1) 1999 205,568 3rd Quarter of 2010
7 Chung On Shopping Centre 1996 83,856 1st Quarter of 2008
8 Fu Tung Plaza 1997 104,686 3rd Quarter of 2008
9 Hau Tak Shopping Centre 1993 177,952 4th Quarter of 2008
10 Hing Wah Plaza 2000 82,011 4th Quarter of 2009
11 Kwai Fong Plaza 2000 57,822 2nd Quarter of 2009
12 Lek Yuen Plaza 1976 105,735 3rd Quarter of 2008
13 Lok Fu Plaza 1991 388,133 1st Quarter of 2011
14 Lung Cheung Plaza (Phase 1) 2001 154,270 3rd Quarter of 2010
15 Ming Tak Shopping Centre 1999 38,792 2nd Quarter of 2007
16 Siu Sai Wan Plaza 1989 101,187 3rd Quarter of 2010
17 Stanley Plaza 1999 100,211 3rd Quarter of 2011
18 Tai Wo Plaza 1989 143,456 3rd Quarter of 2009
19 Tak Tin Plaza 1991 98,492 3rd Quarter of 2010
20 Tin Shui Shopping Centre 1992 72,898 1st Quarter of 2012
21 Tin Yiu Plaza 1992 97,122 1st Quarter of 2009
22 Tsz Wan Shan Shopping Centre 1997 202,978 2nd Quarter of 2006
23 Wo Che Plaza 1977 191,685 2nd Quarter of 2009
24 Wong Tai Sin Plaza 1982 148,023 4th Quarter 2009
25 Tai Yuen Market 1980 40,000 1st Quarter of 2012
Figure 4: Property Completed Asset Enhancement Projects since 25 Nov 2005

54
No. Property Name Year Built IFA (Sq. Ft.) Estimate Completion
26 Chung Fu Plaza ( Phase 3 ) 1999 205,568 Mid 2013
27 Leung King Plaza 1988 152,126 Mid 2012
28 Oi Man Shopping Centre 1975 140,803 Late 2012
29 Sheung Tak Shopping Centre 1998 130,421 Early 2013
30 Sun Chui Shopping Centre 1983 77,236 Mid 2012
31 Wah Sum Shopping Centre 1995 20,408 Late 2012
32 Yiu On Shopping Centre 1989 27,861 Late 2012
Figure 5: Property still undergoing Asset Enhancement Project

6.1 Aims for Asset Enhancement Project

The ultimate aim of the asset enhancement work could be traced as the following:

6.1.1 Corporate Vision: Enhance business income

The Link as a private listed company, their aim is to provide considerable return for

the company and their investors. The Link would like to use the asset enhancement

project as a mean to increase their rental income. With better shopping environment,

it enables the Link increase their bargaining power on rental level during tenancy

renewal or negotiation. The renovation projects also enable them to fully utilizes the

internal floor area for leasing which brings about the increase in total rent

receivables for each shopping centres. The Link also believes that, asset

enhancement work could bring about better shopping experience and attracts more

customers, which also benefit their tenants to make more profit. Thus the tenants

are more willing to pay higher rent for such consideration profit returns. Last not not

55
least, their unitholders could also benefit from their increasing stock value and the

distribution per stock unit (DPU). (The Link will release DPU twice per year)

Apart from earning income, the corporate vision of The Link was to achieve a world

class real estate investor and manager serving and improving the lives of those

around them. Asset enhancement served as a foundation for being change. After

they have taken over those public estate commercial centres, they attempted to

upgrade their shopping centre so as to complete with other local private real estate

developers, and wish their corporate logo would eventually become a world class

benchmarking through the asset enhancement projects.

6.1.2 Benefit for business partners

The Link believed that occupancy rate is a reflection of demand for space in their

portfolio.14 Although, the occupancy rate will varies depending on the magnitude

and stage of progress of asset enhancement works, The Link has confidence in the

asset enhancement work would eventually improve the occupancy rate of shopping

centres compared with HKHA era.

14
The Link REIT, 2010/06 Annual Report, 31 Mar 2006, P.30

56
Besides, catchment area will increase due to better trade mix, tenant mix and

occupancy rate of the shopping centre. In order words, more shoppers, customers

and tourist will be attracted to the shopping centres, which greatly enhance the

footfall and pedestrian flow of the shopping centre. Under this circumstance, the

tenants would find that it is a favorable business environment for making profitable

returns. Such phenomenon could be truly reflected from the gross receipt reported

from the tenant and the total turnover rent receivable for the shopping centre.

6.1.3 Serve the people and the community

Since many of The Link shopping centres are located near the public housing estates,

which serve the daily needs of 40% of family and households in Hong Kong. The Link

would like to optimize the retail trade mix which tends to be consumer staples,

catering for the daily necessities of local residents. With asset enhancement project,

The Link could attract and invite more anchor tenants to settle in their shopping

centres, so as to ensure tenant diversification across the portfolio and serve various

needs for nearby residents.

As mentioned earlier, customer would have ever-changing needs towards the

“service industry”. Shopping centre industry is definitely one of the services to the

57
potential shoppers and customers. The management of The Link is in faith that asset

enhancement project enables the shopping centre closely stick with the customer

needs and trends. As a result to re-design of trade mix, upgrading of shopping centre

equipment and service standard, customers will have a better shopping experience

satisfaction.

Besides, The Link treats the asset enhancement project as an opportunity to upgrade

her service standard, no matter in form of hardware or software. Hardware includes

shopping centre equipment like toilets, service lift and escalator, rest room, baby

room, lockers, lightings, air-conditioning and even fire-safety provisions etc. In

addition, there are some facilities modifications to enhance “Barrier Free Access”,

serving the person with disability in the community. Software means the service

standard of the staff. Intensive training and re-profiling for security and cleansing

contracts are commonly practices which come together with the asset enhancement

projects. The intention of such arrangement was to improve the shopping experience

of the shopping centre which serves its nearby community.

58
6.2 Case Studies on Asset Enhancement Project

Three cases is chosen from each type of hierarchy for further study the scope of work:

1) Lok Fu Plaza (Flagship shopping centre); 2) Lung Cheung Plaza / Wong Tai Sin Plaza

(District Centre) and 3) Chuk Yuen Plaza. Three cases were located in the same

district, Wong Tai Sin district; however they are representing different types of

shopping centre according to the classified hierarchy by The Link. We will try to see

their scope of renovation work in these three cases and find out whether the asset

enhancement project are successful in achieving their corporate aims.

6.2.1 Case Study for Flagship shopping centre: Lok Fu Plaza

Background of Lok Fu Plaza

Lok Fu Plaza (LFP) was built by HKHA in 1991. It is the largest property within The Link

with total IFA about 388,133 square feet. Lok Fu Plaza was located in the middle of

Kowloon and near Lok Fu MTR station. It was surrounded with two large public

housing estates, Lok Fu Estates and Wang Tau Hom Estates, and their catchment

population was about 900,000 people.

The renovation programme commenced by The Link in 2007. After a series of phased

renovations over a period of four years, a grand completion ceremony of Lok Fu Plaza

was held on 28 April 2011. The renovation works covered every corner of the entire

59
shopping centre, including the repartitioning of shops and a re-layout of the arcade

to improve traffic flow. Works included the provision of a new medical centre;

upgrading interior finishes and the external façade; construction of an atrium;

improvements to the lavatory facilities, including disabled provisions and a baby-care

room; and the introduction of an anchor department store, UNY. The design

concept of Lok Fu is to create a leisurely and relaxing shopping atmosphere.

Lok Fu Plaza has approximately over 300 numbers of shops and it is the highest

income shopping centre within The Link with about $189 million HK dollars per

annum. As the largest retail property of The Link REIT’s portfolio, Lok Fu is regarded

as a flagship shopping centre and expected to become a major shopping destination

in central Kowloon for shoppers of all ages and interests.

Renovation of Physical Appearance and layout

In order to increase the visibility of the shopping centre, physical appearance is

careful designed, for example new external façade, replacement of new interior

flooring materials, false ceiling, improvement of lightings and new plaza logos. It can

increase attraction towards customers and shoppers. (Refer Figure 6 & 7)

60
New atrium has also been built to enhance the spacious feeling of the shopping

centre and create a comfortable shopping environment. (Refer Figure 8)

Figure 6: Upgraded layout of Lok Fu Plaza

Figure 7: Interior renovation of Lok Fu Plaza

Figure 8: New atrium for Lok Fu Plaza

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Enhance pedestrian circulation

The renovation work has restructured interval and shops distribution. An “one mall

concept” is adopted to link up three main buildings of the entire property so as to

increase traffic circulation. (Refer Figure 9)

Besides, in order to make use of the advantages of the MTR station, an additional

linkage escalation has been built to draw more people into the shopping centre from

the MTR station. Another new escalator has been built inside the mall could

distribute shopper traffic and also allowing for quick movement of shoppers from

floor to floor to visit different tenants. (Refer Figure 10)

In addition, re-locate or re-partition of old shops; to widen the common corridor and

enhance the spacious atmosphere would also create a more comfortable shopping

environment for shoppers as well as maximize land use in economic effectiveness

with limited space. (Refer Figure 11)

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 Figure 9: “One mall concept” for Lok Fu Plaza

Figure 10: New escalator Lok Fu Plaza

Figure 11: Re-partition of shops in Lok Fu Plaza

Anchor tenant and re-design of trade mix

About 100,000 square feet area of the shopping centre is leased to an anchor tenant,

UNY. It likes a departmental store provides “one-stop shopping” and a wide range of

products including daily necessity, fashion and furniture to fulfill various customers

need etc.

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The renovation work also includes the re-partition of large shops into smaller retails

shops. This strategy could allow more new tenants with new trades to settle into the

shopping centre, and also achieve the intention of tenant / trade diversification

within the mall. Re-zoning concept is also adopted to gather the tenants with similar

trade and related products together, which enables customer to purchase similar

kind of product in a very short time and also allow them to compare among the

products before making purchase decision. Most customers will feel more

convenience especially people in Hong Kong since they are always very rush and have

limited time for shopping.

Despite of inviting new anchor tenants, during the renovation of Lok Fu Plaza, small

tenants are persevered so as to minimized nuisance and disturbance towards the old

small tenants. A previous dry market is renovated into part of the shopping centre,

old tenants in dry market are able to stay in this renovated zone. (Refer Figure 12 &

13)

As a result, the trade mix and tenant diversification in Lok Fu Plaza has greatly

increased compare with before renovation carried out. Retails shops has been

64
increase from about 90 to over 180, Food and beverage tenants has also increase

from about 20 to over 40 restaurants.

Figure 12: Renovation of dry market in Lok Fu Plaza

Figure 13: Recote tenant of dry market in Lok Fu Plaza

Marketing and promotion

In order to attract more potential customers for the shopping centre, marketing and

promotion is a key strategy for propaganda. Therefore, the promotion venue at Lok

Fu plaza has been enlarged and renovated so as to cater for more promotion activity

for the shopping centre.

Besides, parking space and parking discount is essential to attract car-users to come

and stay in the mall for shopping and purchasing. New free-parking scheme is also

65
launched. Customer who spent a certain amount of money inside the shopping

centre, will be entitled enjoy certain hours of free-parking. The scheme not only

benefits the car drivers but also help to boost the sales of the shopping centre.

Figure 14: Promotion venue at Lok Fu Plaza

Figure 15: New free-parking scheme in Lok Fu Plaza

6.2.2 Case Study for District shopping centre: Lung Cheung Plaza / Wong Tai Sin Plaza

Background of Wong Tai Sin Plaza and Lung Cheung Plaza

Wong Tai Sin Plaza (WTSP) and Lung Cheung Plaza (LCP) are two separate shopping

centre located near to the MTR exit of Wong Tai Sin Station. As from the below photo,

we could see that they are separated by a busy traffic road called Lung Cheung Road.

66
 Figure 16: Locational map of Lung Cheung Plaza and Wong Tai Sin Plaza

Wong Tai Sin Plaza was built by HA in 1984 while Lung Cheung Plaza was completed

by HA in 2001 during the redevelopment project in Upper Wong Tai Sin Estate. The

Link has further carried out renovation work in these two shopping centre and

completed in 2009 and 2010 respectively. The two centres are not only benefit from

located near to the MTR station, but also they are both located near to the famous

tourist location, Wong Tai Sin Temple, in Hong Kong. Numerous tourists have visited

Wong Tai Sin Temple especially during festival and Lunar New Year.

Although there is locational advantage for these two centres, competitions from

others developers within the district are intense. Festival Walk in Kowloon Tong,

Plaza Hollywood in Diamond Hill and Kowloon City Plaza in Kowloon City are three

main competitors for Wong Tai Sin Plaza and Lung Cheung Plaza. Since they are both

near to the MTR station, potential shopper may like farther to visit the competitors’

shopping centres rather than The Link one. In order to increase competitiveness, The

67
Link decided to make use of the advantages of WTSP and LCP and initialed a series of

renovation program in these two shopping centres.

Scope of Work

Increase accessibility and re-positioning of the shopping centre

To take advantages of accessibility is another hardcore opportunities in assets

enhancement in LCP and WTSP. Since both centres are located near to MTR station

and Wong Tai Sin temple, it is already a great advantage to attract more customers,

tourist and footfall. But in order to maximize the advantages and enable customers

and tourists to have an easier and convenience travels, the renovation work has

extended one more footbridge to from LCP to WTSP crossing Lung Cheung Road,

which has given a more friendly access for people to pass through. Tourist after

visiting Wong Tai Sin Temple could also easily reach WTSP for shopping and dining

purposes. The extension of footbridges increase pedestrian circulation between both

shopping centres, and tenants could also benefit from such increases in footfall level.

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 Figure 17: Extension of footbrige connecting Lung Cheung Plaza and Wong Tai Sin Plaza

Since Wong Tai Sin Temple is hot destination for the tourists and foreigners, many

tour buses and coaches have limited space for parking, which creates much

inconvenience to the traveler. In view to take this advantage, LCP initialed the

renovation work and converted an unused carpark area alongside the walkway to

Wong Tai Sin into shops, while a loading area for tour buses has been created at the

entrance of the walkway to cater the need for tourism in Wong Tai Sin Temple. The

loading area acted as a drop-off point to welcome the tourist, and the drop-off point

does not only enable the tourist to reach the famous Wong Tai Sin Temple, but they

can also enjoy various shopping and dining purpose in the shopping centre. As a

result, it created more business opportunities for the tenants.

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 Figure 18: Converting carpark area into shops

The above renovation work of LCP and WTSP has resulted in re-positioning of the

shopping centre and increase competitiveness among others developers. From the

below chart, the extension of footbridge to connect LCP and WTSP is giving a sense

to the shoppers that two separate shopping centre has merged into one single

properties. They can travel between two shopping centres more easily and more

convenience. The accessibility and re-positioning of two shopping centres help The

Link to narrow the gap between their competitors.

Figure 19: Re-positioning of Lung Cheung Plaza and Wong Tai Sin Plaza

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Increase visibility of shopping centre

Since LCP and WTSP are located near the MTR station and the traffic main road, Lung

Cheung Road, increase in visibility of the shopping centre has definite effect in

attracting drivers and other potential shoppers. In taking such advantage, the

strategies to the increase visibility of SC includes replacement of new signage and

re-design lighting system.

New Signage is also compatible with overall design of the renovation. With new

signage at external wall / façade gives new images and attraction to shoppers. LCP

and WTSP not only re-new the logo of the shopping centres, but it also replaced new

directory and directional sign inside the mall. These changes not only bring new

images to customers, but also increase the visibility of the shopping centres.

Figure 20: New directory and signage in Lung Cheung Plaza and Wong Tai Sin Plaza

71
Secondly, lighting is an important factor in terms for centers’ appearance and

security; both exterior and interior light systems should be carefully inspected and

evaluated. Lighting in common areas must be adequate, with glare kept to a

minimum. Special consideration like mall entrances and areas of pedestrian

circulation should also take into account because lighting system can attractive

shoppers flow as well as attracts shoppers at night.15 The strategy used in LCP and

WTSP assets enhancement project, is that they added external lightings for the SC

and renovated all the false ceiling with re-wiring and re-distributing the lightings

through careful study, therefore could shoppers could be attracted by external

lightings and when they walk inside the SC, they could feel the adequate lightings to

guide them to various zone of retail shops.

Figure 21: External and Internal lightings improvements

15
John A. Casazza, “Shopping centre development handbook”, (Washington, D.C.: ULI-Urban Land
Institute, c1999), P.102

72
6.2.3 Case Study for Local shopping centre: Chuk Yuen Plaza

Background of Chuk Yuen Plaza

Chuk Yuen Plaza (CYP) was built by HKHA in 1984, with total IFA about 137,966

square feet. Chuk Yuen Plaza was one of them oldest shopping centre located in the

east of Kowloon. Therefore, it does not have a typical enclosed shopping centre

layout i.e. non air-conditioning supply shopping centre, common area are mostly

open space. Residents in Chuk Yuen North Esates and Chuk Yuen South Estate are the

main catchment area of Chuk Yuen Plaza since it is not near to the MTR station. Two

estates were also being built in 1980s; residents are thus mainly elderly with low

purchasing power. The residents need to reach the nearest MTR station, Wong Tai Sin

Station, with minimal 15-minutes’ walk.

Scope of Work

Improve air-circulation design

Since CYP is a non-air conditioning shopping centre, this somehow will lower the

incentive for the people going to CYP, especially hot summer time in Hong Kong,

many people would like to go air-conditioning shopping centre which has a more

comfortable environment for shopping. In view of design, project team of CYP has

improved this weakness during renovation. Before the renovation, there is only wet

73
market in G/F have air-conditioning supply. After the renovation project, an

additional A/C supply has covered the main entrance area and lobby of CYP. Although

other common area remains without A/C supply, a new ventilation system was

installed to improve the better air circulation within the shopping centre. Cooled air

inside the A/C area is allowed to transfer to other part of common area.

Figure 22: New entrance lobby with A/C supply in Chuk Yuen Plaza

Figure 23: New air circulation deisgn of Chuk Yuen Plaza

Renovation on physical appearance and layout

“Chuk” in Chinese means bamboo. A new bamboo design theme was used

throughout CYP, including the atrium ceiling, an atrium glass wall and external façade.

74
The enlarged atrium has created a sense of comfort and enhances the visual

connection through the surrounding glazed balustrade. In addition to enhancing the

atmosphere inside the centre, our asset enhancement works included an enlarged

podium to provide a neighborhoods gathering place.

The re-partition of shop and re-design of corridor increase the traffic circulation and

allow the shoppers to pass through as many shops as possible.

Figure 24: New External façade of Chuk Yuen Plaza

Figure 25: New inerior flooring and ceiling materials

75
 Figure 26: New shop partition to enhance pedestrain circulation

Increase Connection to MTR station

The catchment area of CYP is quite limited due to its inconvenience location. Before

the renovation work carried out by The Link, there were only public transport and

one staircase linked between CYP and MTR station. Residents of Chuk Yuen Estates

had to take bus/mini-bus or take at least a 10-15 minutes’ walk to the nearest MTR

station. Potential customers were also discouraged to shop in CYP. Therefore, the

main potential customers are only residents living nearby CYP.

Difficulty for the project team is that it is impossible to build a covered walkway to

the MTR station since the cost is high and it involved varies government

departments’ area, and it is difficult to gain approval from them. But then, the

management of The Link sought out a solution and stated negotiation with the

76
Housing Authority that suggested building a footbridge across to the Upper Wong Tai

Sin Estate. Firstly link up Chuk Yuen Estate and Upper Wong Tai Sin Estate and then

residents could use the lift lobby of Upper Wong Tai Sin Estate to reach the MTR

station easily. Since then, CYP could be reached by potential shoppers and local

residents much easier and more convenience.

Figure 27: Old Staircase linked up with Chuk Yuen Estate

Figure 28: New footbridge linked up Chuk Yuen Plaza and lift lobby of Upper Wong Tai Sin Estate

77
6.2.4 Enhancement in Management Standard of the shopping centre

To maintain and enhance the popularity, prestige and images of the shopping centre,

good and effective shopping centre is a must in ensuring a smooth and efficient

operation during business hour. A poor management will slowly degrade a shopping

mall over time. Customer will rather choose to go to a shopping centre with better

management standard and customer service. Management of a shopping centre thus

affects the attractiveness of a shopping centre.

In regard of this, The Link issued a written company handbook called “Polices and

Procedure” (P&P) which applied to all shopping centres and standardized all incident

handling steps, method and procedures including emergency case. Emergency

respond and procedures give a sense of security. In terms of risk management,

emergency procedures and policy is a major responsibility of the management team.

Natural disaster, defective premises and manmade emergencies can occur any times.

Shopping centers especially present unique challenges in this regard. Unlike office

buildings or industrial properties where the same groups of people are present every

day, most the people in the shopping centre at any one time are shoppers and they

not be trained to respond to emergency. In addition, many shoppers will be young

children and elderly adults. Security staff should be trained to handled potential

78
property risk i.e. fire hazard, dilapidated building elements or services, slippery floor

or stairs, falling objects from height, ineffective crowd control measures.16 Security

in sense of risk management to prevent accident within the SC is important not only

because of maintaining company goodwill, but more importantly to safeguarding

human lives. Thus, all staff is needed to fully train up before reporting duty. Staff is

trained up to respond customer and tenants needs quickly and efficiently.

Besides, security is a sense of safety, freedom from care, anxiety or apprehension.

With higher expectation of security services from the public nowadays, both tenants

and shoppers need to feel safe while they are shopping.17 In terms of human

resources, The Link re-profiled security manpower with 24 hours a day Security staff

will perform patrol, inspection and emergency respond during the opening hours

shopping centers, overnight shift security also need when the shopping centre is

closed in order to check all the doors is properly locked and protect property of the

tenants from damages or loses when the SC is closed.

In addition, physical security has also been enhanced in the Link’s shopping centres

16
Ricky Y.K. Yuen, “Property Risk Management”, in Professional Housing Management Practice in
Hong Kong, edited by Rebecca Chiu, (Hong Kong: Hong Kong University Press, 2006), P.156
17
Alan A. Alexander, Richard F. Muhlebach, “Shopping centre management”, (London: Longman,
1983), P.142

79
during renovation project. Physical security describes both measures that prevent or

deter attackers from accessing a facility, resource, or information stored on physical

media, and guidance on how to design structures to resist various hostile acts.18 It

can be as simple as a locked door or as elaborate as multiple layers of armed security

guards and guardhouse placement. Information technology can also be used in

physical security like CCTV system in shopping centers. CCTV system is always being

reviewed during renovation so as to cover as much area as possible in the shopping

centre. It acted as a sense of security to minimize shop lifting and shop theft case.

On the other hand, The Link also aimed to improve cleansing condition and hygiene

services in the shopping centres. Tenants and shoppers have high expectation on the

cleaning condition of the shopping centre especially public facilities like toilets and

restroom. In order to improve cleansing condition of the toilets, cleaning manpower

has been reviewed. For instance, toilets are frequently used facility inside a shopping

centre. When there is water is found seeping on the floor, toilet cleaner should clean

up the affected area immediately to prevent slippery floor and poor cleaning

condition. As a result, the Link has an additional arrangement of toilet attendant who

is specialized to clean up the toilet area as soon as possible. Shoppers and tenant will

18
Task Committee (1999). Structural Design for Physical Security. ASCE

80
feel more comfortable inside the shopping centre with improvement in the quality of

cleaning services.

Last but not least, repair and maintenance is an important management issue in

shopping centre. Facilities within an SC are frequently used by tenants and shoppers,

to provide a well functioned facility by the SC is expected from them. Maintenance

works were inevitable as it is in the nature of materials to deteriorate over time or

normal wear and tear with usage and exposure to element of climate or frequent

usage.19 Thus, routine repair and maintenance is a must to ensure facilities within

the mall are well performed, a simply example lift and escalator. The consequence of

a poor maintenance attitude will be a disaster, such as generating lots of complaints

from tenants and shoppers. As a result, an effective maintenance management

program can assure a high-quality shopping environment while preserving and

upgrading the condition of the property and enhancing its value.20 Apart from that,

planned maintenance is frequently carried out by The Link; it is a preventive and

predictive maintenance to be done in order to minimize accident to shoppers and

tenants.

19
Chanter, Barrier, “Building Maintenance Management”, (Oxford, Malden, MA: Blackwell, 2007),
P.128.
20
Martin P.G., “Shopping Centre Management”, (London: Spon, 1982), P.210.

81
CHAPTER 7 - Analysis and Findings

7.1 Location determines the asset enhancement project

Base on the 25 shopping centres which has completed with the asset enhancement

work and the above case studies about the scope of renovation work, it is easily for

us the identity the same pattern when The Link decided the location and the scope

for renovation work. From the below graphic showing the location of shopping

centres which has already completed with the renovation work, we could find that

most of them are located along the railways line, except Stanley Plaza is farther away

in the southern Hong Kong Island. Every shopping centre would have its unique

location, the shopping centre which is nearer to the MTR station and main

transportation route would have a much higher potential for future development.

Since accessibility for a shopping centre is crucial for its success. As a new established

company, The Link would like to make use of asset enhancement project to gain

more income and establish their corporate image in this industry.

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 Figure 29: Strategic map of shopping centre completed renovation work

Besides, because of the uniqueness of shopping centre location, it affects their scope

of renovation work too. One on hand, the asset enhancement work tried to amplify

the advantage of locational factor, on the other hand, it also tried to weaken the

disadvantages of inaccessibility in some shopping centre. For example, look at the

above case study of LCP and WTSP. Since both shopping centre located near the MTR

station as well as Wong Tai Sin Temple, there is a strong locational advantages to the

shopping centre. The extension of footbridge would strengthen the pedestrian flow

within both shopping centres.

As we could see the locational factor could determine the priority of asset

enhancement project and the scope of renovation work. The reason would be the

83
locational advantage of those shopping centres could also bring about considerable

returns for The Link and their co-partners. The below parts will analyze the operating

result of The Link between before and after renovation work.

7.2 Operating Result of Asset Enhancement Projects

Shopping centre assessed value will always be increase after they have completed

with the asset enhancement project. With higher assessed value, means that The

Link has bigger room for increase in rental level. In addition to the leasing strategy by

The Link, the average monthly base rent is increasing year from year. The below table

is showing the annual rental receivables for the shopping centres mentioned in the

case study above. We could see that the annual rental income increase year from

year. Besides, there is always a drastic increase in annual income after the

completion of asset enhancement project. It is because the assessed value of the

property is greatly enhanced after the renovation project, therefore The Link would

have a better opportunity for rental increase during the tenancy negotiation.

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 Annual Income Lok Fu Plaza Lung Cheung Plaza Wong Tai Sin Plaza Chuk Yuen Plaza
($ Million)
2005-06 HK$91.40 HK$38.45 HK$38.48 HK$32.29
2006-07 HK$94.56 HK$43.43 HK$35.91 HK$35.45
2007-08 HK$90.48 HK$62.61 HK$46.69 HK$36.30
2008-09 HK$66.70 HK$67.38 HK$67.46 HK$39.36
2009-10 HK$98.64 HK$79.11* HK$87.62* HK$43.35
2010-11 HK$188.10* HK$84.50 HK$89.50 HK$59.60*
2011-12 HK$189.10 HK$90.30 HK$103.40 HK$65.20
* Completion Year of Asset Enhancement Project

Figure 30: Annual rental income of shopping centres

Year Valuation for Retail Properties (HK$ Million) Variance compared with last year
2007/08 HK$36,105.00 -
2008/09 HK$35,460.00 -1.79%
2009/10 HK$43,315.00 22.15%
2010/11 HK$57,510.00 32.77%
2011/12 HK$65,311.00 13.56%

Figure 31: Valution of Retail Propertieis of The Link REIT

From a more macro aspect, the base rent per square feet is also increased year from

year within The Link’s properties. From below table, we could see that the average

monthly base rent has increased from $23 per square feet in 2005/06 to $35.8 per

square feet in 2011/12 i.e. an 56% increases. The rental level is two times more than

that under the management of HKHA. Some tenants, especially those large retail

stores and anchor tenants, agreed to pay turnover rent, i.e. apart from the base rent

paid by the tenant, the tenant will need to pay an extra additional rent equivalent to

85
certain percentage of their gross receipts. The percentage depends on the

negotiation of the Tenancy Agreement.

Year 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

Average
Monthly $23.0 $23.6 $25.4 $28.4 $30.6 $32.8 $35.8
Base Rent

Figure 31: Average monthly base rent of The Link REIT ($ per sq. ft.)

In addition to the increasing monthly base rent, The Link continues to deliver earning

growth. In 2005/06, the revenue and net property income was only $1354 million

$813 million (surplus) respectively. However, according to the latest statistic from

The Link, their revenue and net property income has increased to $5932 million and

$4185 million. Comparing to that of HKHA, it has only got around $1000 - $1500

million income per year.

Year 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

Revenues $1,354 $3,954 $4,199 $4,503 $4,990 $5,353 $5,932
NPI $815 $2,361 $2,537 $2,805 $3,328 $3,644 $4,185
Figure 32: Revenues and Net Property Income of The Link REIT($ millions)

Stable Trade Mix and Return for Co-partners

The asset enhancement project is continuously refining and expanding the trade mix

within the portfolio and provides a better shopping experience for the shoppers, so

86
as to fulfill the ever-changing customers’ demand. The renovation project enables to

attract both anchor tenants and new small tenant groups to start business within the

shopping centres, which leading to a diverse base of tenants of various sizes including

some of the major retail groups in Hong Kong and a large number of small tenants.

According to The Link, the small tenants accounted for 60% of the total retail shops in

their portfolio while remaining 40% accounted for anchor tenants. And the below

graphic shows the balanced retail trade mix of The Link as of the year ended 2012.

Figure 33: Overall trade mix of The Link REIT (Source: The Link annual report 2011/12)

In addition to a balanced trade mix, it is believed that the success of shopping centre

depends on its ability to attract different types of shoppers to visit the centre on a

regular basis. The Link tried to offer more shopper choice on top of major retail store

operators. With the asset enhancement project, the re-partition of allow fully utilize

of leased area, and the large stores are now spitted into smaller retailer shops to

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offer more choice for customer. Compared to five years ago, the total number of

leased shop has increase by 394 to 3305 as follow:

As of 31 Mar 2011 As of 31 March 2006

Shops only No. of shops Leased IFA '000 sq ft % of total No. of shops Leased IFA '000 sq ft % of total

Below 500 sq ft 1,846 604 37.60% 1,596 531 37.20%

Over 501 sq ft 1,459 1,001 62.40% 1,351 896 62.80%
Total 3,305 1,605 100% 2,911 1,427 100%

Figure 34: Comparsion on total number of shops

The stabilized and diversified trade mix attracts potential shoppers and builds up a

favorable business environment for the retailers and the tenants. Average monthly

retail gross sales during the latest year 2011-2012 reported by the tenants have

increased by 10.7% as compared to previous year. This underlies the support from

the shopper on The Link’s strategy of enriching the shopping environment by adding

product and services varieties, asset enhancement project upgrades and improved

customer services.

Figure 34: Gross sales changes of tenants (Source: The Link annual report 2011/12)

88
Occupancy Rate

On the other hand, the asset enhancement project improves the occupancy rate

which indicates the retailers demand for space inside The Link’s portfolio. From the

below table we could see that the occupancy rate of shopping centre has dropped to

8.8% immediately after the privatization of The Link in 2005/06, and it even reached

the lowest 87.4% in 2008/09. The decreases in occupancy rate are due to two

reasons:

Year 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

Occupancy % 91.2% 90.3% 89.3% 87.4% 90.6% 91.5% 92.9%
Vacancy % 8.8% 9.7% 10.7% 12.6% 9.4% 8.5% 7.1%
Figure 35: Vacancy Rate of Retail facilities of The Link from 2005 to 2012

Firstly, in the first three years after HKHA has handed-over the commercial properties

to The Link, many of the tenancy agreements has come to expiry. During the

negotiation of tenancy renewal with The Link, some of the small tenants could not

afford a dramatic increase in rental level would choose to surrender their tenancies.

Secondly, The Link has chosen more and more shopping centres to carry out asset

enhancement work in the first few years may also resulted in the drop of occupancy

rate. Since asset enhancement work undergone in some shopping centres, part of

the shopping centre of even 1 to 2 floor of shopping centre had to be closed for

89
renovation. Besides, one common practice by the Link is that, they would usually

downsize some large retail stores e.g. restaurant, super-market, and split into smaller

retail shops so as to get more rental income. As a result, more vacant shop will be

created. Hence, the drop in occupancy rate does not mean The Link is performing

worse Leasing management than the HKHA.

In fact, they had experienced a continuous rises in occupancy rate in last three years,

as they are actively inviting more new branding and anchor tenants to their shopping

centres and the completion of asset enhancement project also bring about such

increases in occupancy rate.

Customer Satisfaction

The Link has initiated a survey to gauge the satisfaction level of shoppers after Asset

Enhancement project. In early 2006, The Link has conducted a survey about asset

enhancement project after they have finished their first series renovation work in Tsz

Wan Shan Plaza. It is reflected that 61% respondents extend their stay in the SC in

holidays; average duration per visit has increased for about 30 – 60 minutes. 83% of

respondents agree that enhancement works would benefit residents nearby while

73% of respondents agree The Link continue to extend enhancement works through

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the portfolio. 21 The latest survey is conducted by The Link in 2011-12, an

independent consultant was engaged to conduct customer opinion surveys. Results

indicate customer satisfaction levels on many of our shopping centres, including Lok

Fu Plaza, Wong Tai Sin Plaza, Tai Wo Plaza, Siu Sai Wan Plaza, Cheung Fat Plaza, Tin

Yiu Plaza, Butterfly Plaza, and Wo Che Plaza, rocketed after Asset Enhancement

project. The survey conducted in 2011/2012 indicates that shopping centres averagely

benefited from a 14% increase in visiting frequency per month and a 27% rise in

spending amount per month after Asset Enhancement project.22

From the above operating result from various aspect, we could see that the Asset

Enhancement project are helping The Link for achieving their corporate of not only

benefiting the company, but also the co-partner, unit-holders, tenants, shoppers and

the community.

21
“The Link's First Asset Enhancement Project Well-received”, The Link REIT. Press release, 16 July
2006, on The Link REIT wed site, http://www.thelinkreit.com/TC/news/Pages/Press-Release-309.aspx,
accessed on 30 July 2012.
22
The Link REIT, “Aims and Objective”, The Link REIT web site,
“http://www.thelinkreit.com/EN/assets/Pages/Aim-Objective.aspx”, accessed 23 July 2012.

91
CHAPTER 8 - Conclusion

8.1 Summary

Concept of shopping centre (SC) originally emerged in early nineteenth-century and

the concept changes over time due to the needs and perception from the customers.

Due to ever-changing customers’ demand, shopping centre has transformed and

evolved throughout the years. SC is not only a clustered of shops providing daily

needs for the people, but SC has developed into an industry with intensified

competition among retail operators to provide daily necessity, entertainment, leisure

and services for the customers.

A success of shopping centre depends on several factors. Location and accessibility is

only a congenial factor for successful SC. However, SC will decay and deteriorated

overtime, also the trade mix may not suitable for the customers due to the

ever-changing demand for them. Therefore, renovation and rehabilitation for SC is

essential to keep the SC image and competitiveness. Renovation includes not only

the physical appearance of a SC, but it is important on management strategy like

leasing control on trade mix, management standard on security, cleansing and

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maintenance services, all these will also affect the impression of the tenants and

shoppers towards a SC.

Looking back the case in Hong Kong, The Link REIT has emerged in 2005 after HKHA

has handed over 180 retail and carpark properties. The Link has become one of the

largest retail estate developers in Hong Kong. One of the major tasks they did after

the privatization was to carry out renovation work throughout their portfolio, i.e.

Asset Enhancement Projects. The aims for the enhancement projects include

corporate vision as well as benefiting their business partners, unit-holders, shoppers

and the community they served. Base on the three case studies about the scope of

renovation work, we could understand that the operation result has greatly improved

as compared with the HKHA era.

8.2 Limitation

The limitation through the research paper is the difficulty to obtain data about the

monthly / daily footfall of the shopping centres. Footfall is the best indicator for the

attractiveness of a shopping centre. It also reflects that shoppers are more willing to

choose to go that particular centre for shopping. Yet, The Link has no reliable source

and statics on the footfall level of the shopping centre. It is suggested thay if we

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could obtain reliable footfall statistic of The Link’s shopping centre, we could make

comparison on footfall changes between before after the shopping centre

renovation.

Besides, the operating result of The Link has excluded the political factor. The

privatization of the Link has always become a political issue and the drastic increase

in rental level is blamed by political parties for intensifying inflation. Small tenants

and traditional stores are facing extinction within The Link’s portfolio. Criticism to the

Link from various political parties and public did affect their corporate image and

shoppers’ preference. However, the bboycott from shoppers and political parties is

difficult for measurement; therefore the political factor has been excluded during

analysis.

Last but not least, the research paper is difficult to show the scope of renovation

work on all 25 shopping centres. Therefore, we could only choose one of them from

each type of shopping centre for analysis. Each shopping centre has its uniqueness

on location, catchment area and customers’ preference. Therefore, we could not

trace the scope of renovation work one by one. The possible solution is to find out

the direction and common strategy of The Link during the renovation projects.

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