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Interface News reporter | Huang Shan

Jiemian News Editor | Lou Qiqin

According to Hong Kong Hang Lung Properties' 2024 interim results, the group's revenue in the first half of the year increased by 16.7% year-on-year to HK$6.1 billion, and its net profit plummeted by 56% to HK$1.06 billion. Overall rental income fell by 7% to HK$4.89 billion, of which the rental income of the mainland China property portfolio fell by 6%.

The slump in luxury goods consumption in first-tier cities was the main reason for Hang Lung Properties' revenue decline in the mainland. The overall revenue of Hang Lung Properties' high-end shopping malls in the mainland fell by 4%, with the group's business in Shanghai being particularly affected.

Shanghai Plaza 66's revenue fell 8% in the first half of the year, while tenant sales in the mall fell 23% year-on-year. During the same period, Shanghai Grand Gateway 66's revenue fell 4% year-on-year, and tenant sales fell 14%.

Shanghai Henglong Plaza is Hang Lung Properties' shopping mall with the best brand portfolio in mainland China. It is home to top luxury brands in multiple categories including fashion, jewelry, watches, beauty, sports, etc., many of which are from French luxury companies such as LVMH Group, Richemont Group, Kering Group, etc.

The performance of these companies in the first half of 2024 concentrated on a sluggish Chinese market. During the reporting period, LVMH Group's sales revenue in Greater China fell by 10% year-on-year, and the decline widened to 14% in the second quarter of 2024 alone.

The Greater China market of Cartier and Van Cleef & Arpels' Richemont Group saw a 27% year-on-year drop in sales in the first quarter of 2024. Kering Group, which owns brands such as Gucci, Balenciaga and Boucheron, recorded a 20% year-on-year drop in revenue in the Asia-Pacific region in the first half of the year, including a 23% drop in the second quarter.

Luxury goods companies have said that the poor performance of the Chinese market in the first half of the year was caused by factors such as insufficient local consumer confidence and the recovery of overseas shopping. This is also reflected in the interim report of Hang Lung Properties.

Hang Lung Properties pointed out that the group's high-end customers in Shanghai Hang Lung Plaza will still be pursuing the limited edition and luxury goods offered in the mall in the first half of 2024, but customers with lower purchasing power will become more cautious in luxury consumption.

In addition, some consumers turned to buying more discounted luxury goods when traveling abroad, which also dragged down local luxury consumption. It is worth noting that Japan, which is only a two-hour flight away from Shanghai, has become a winner market in the luxury industry this year.

Many of the above-mentioned luxury goods companies achieved double-digit growth in Japan in the first half of the year. This is because the sharp depreciation of the yen has attracted more and more tourists from China, the United States and Europe to make high-end purchases. After the exchange rate is converted, Chinese consumers can buy their favorite luxury goods in Japan at an average price that is 10% cheaper.

Meanwhile, revenue and tenant sales of Shenyang City Hall Plaza 66, Kunming Plaza 66 and Wuhan Plaza 66 declined by 14% and 20%, 1% and 6%, and 2% and 15%, respectively. Only Dalian Plaza 66 saw revenue and tenant sales growth of 8% and 2%, respectively, which was not enough to offset the sharp decline in revenue of Hang Lung Properties' other high-end shopping malls in the Mainland.

On the other hand, Hang Lung Properties' sub-high-end shopping malls in the Mainland will perform better in the first half of 2024, which also reflects the current market's more cautious consumption attitude.

Shenyang Royal City Hang Lung Plaza and Tianjin Hang Lung Plaza both maintained growth in both revenue and tenant sales, recording year-on-year revenue growth of 3% and 15%, and tenant sales growth of 2% and 9%. Jinan Hang Lung Plaza's revenue increased slightly by 1% year-on-year. These malls maintained occupancy rates of 92% to 94%.

Hang Lung Properties is not the only real estate developer affected. Wharf Holdings and Wharf Properties, two listed companies under Wharf Holdings, issued interim profit warnings two days ago, and the situation is not optimistic.

Wharf Property, which mainly operates Hong Kong properties such as Harbour City and Times Square, said that according to the preliminary results of the group's semi-annual independent revaluation of its investment properties, it may record a loss attributable to shareholders of not less than HK$900 million for the six months ending June 30, 2024, while it recorded a profit attributable to shareholders of HK$1.805 billion in the same period of 2023.

Wharf Properties mentioned in the announcement that Hong Kong's retail sales recovered after the border reopened in the first quarter of 2023, but soon stagnated, and the market conditions became more severe in 2024. Mainland tourists have always been the main consumer force in Hong Kong's tourism retail industry. As some mainland tourists go to Japan to consume luxury goods, and a large part of them reduce their high-end consumption expenditures, Hong Kong's high-end retail is bound to be affected.

The performance disclosed by Wharf Holdings, which includes property performance data for both mainland China and Hong Kong markets, is even less optimistic.

According to the preliminary results of the semi-annual independent revaluation of the group's investment properties, the total revaluation loss for the six months ending June 30, 2024 may exceed the underlying net profit for the same period. The loss attributable to shareholders for the six months ending June 30, 2024 may be between HK$2.5 billion and HK$2.8 billion, while the profit attributable to shareholders for the same period in 2023 was HK$696 million.

Swire Properties, which owns several shopping malls in the mainland, has not yet released its interim results for 2024. However, the company's performance in the first quarter of 2024 already shows the impact of the cooling of luxury consumption on high-quality shopping mall retail.

In the three months ending March 31, 2024, the comprehensive retail sales of Swire Properties' six shopping malls in the Mainland showed negative growth. Among them, only Taikoo Li Qiantan in Shanghai increased slightly by 0.7% year-on-year, which was basically the same as the previous year. The other five shopping malls all showed negative growth.

Among them, Chengdu Taikoo Li and Guangzhou Taikoo Li, where first-tier luxury brands are concentrated, recorded a decline in retail sales of 9.2% and 14.7% respectively in the quarter, while the second-high-end Shanghai Xingye Taikoo Li fell 19.4%.

The Taikoo Li Sanlitun in Beijing, which has a large flow of people, fell by 5.4% in the quarter. It is worth noting that Sanlitun has been actively adjusting its brand portfolio since 2022, following the trend of reverse growth of outdoor sports brands and introducing sports brands such as Anta, FILA, and Descente.

In Sanlitun North, more and more high-end luxury brands have moved in, replacing the space previously occupied by niche designer brands. The arrival of sports brands has brought some growth to Sanlitun, but the collective cold reception of luxury brands has further suppressed growth. The combination of the two has caused a single-digit decline in Sanlitun tenant sales.

Swire Properties is expected to release its interim report in mid-August 2024. CCB International published a research report saying that due to the sluggish retail market in Hong Kong and mainland China, coupled with a surge in interest expenses, the bank has lowered Swire Properties' earnings forecast for 2024-2026 by 12%-14.9%. However, the report also emphasized that Swire Properties' dividend yield is expected to be more attractive than its peers in the next few years.